Blog | Real Estate

The Beauty of a Boom

Now is the ideal time to learn the fundamentals of investing

How great is the U.S. economy right now? Since Republican tax cuts were signed into law, our country has created 1 million new jobs. The unemployment rate has dropped to 3.8 percent (it’s lowest point since 2000). Wages are also on the rise, with hourly earnings up 2.8 percent over a year ago. What a wonderful economic boom we’re currently living in!

But have you ever noticed that when people are fat and happy, as they are in a boom, they tend to get a bit lazy? The feeling of living on easy street often breeds complacency and some people forget how they landed on easy street to begin with. Oftentimes, it was due to things like hard work, conducting research and getting educated on specific industries, and seeking guidance from a successful mentor. Which brings me to my point: Just because the real estate market is booming and money is coming easy, certainly doesn’t mean you should use this time to stop learning.

Focusing on the Fundamentals

Let’s say you’ve never stepped foot in a kitchen. You certainly wouldn’t start off making a tricky eggs benedict dish for your first foray into cooking. You’d probably start with something more fundamental—perhaps some scrambled or sunny-side-up eggs—because they have less components and timing considerations. Once you have the fundamentals of cooking an egg nailed, you can set your sights on a more challenging recipe.

The same can be said for investing. After the housing crash and the stock market crash a decade ago, there were more people than ever warning that “investing is risky.” The problem was that not everyone defined “investing” the same way.

Most people think of investing as any situation where you put down money with the expectation of getting a return on your money. Unfortunately, what many people think of as investing is actually gambling. This is why so many people were burned by those crashes. Many so-called “investors” bought into the real estate market when it was hot, prices were soaring, and they invested on the hope that home values would keep rising, even taking on properties that cost more to buy and maintain than they could be rented for.

On the flip side, experienced investors who understand the fundamentals of real estate investing refused to buy houses that couldn’t cash flow, and sold properties they’d acquired before the boom for a nice profit. Now, which methodology sounds like the better plan of action?

In any kind of investing, what sets the gamblers apart from the true investors is an understanding of the fundamentals. Knowing and following the fundamentals takes much of the risk out of investing. There’s always some risk, but by sticking to sound investment strategies and planning for ways to cover the downside, the risk can be greatly reduced.

Booms: The Perfect Time to Learn

So how are you spending your time during this awesome boom? Are you continuing to learn? Or are you sitting back fat and happy?

From my perspective, the largest risk you face is not taking steps to actively improve your financial intelligence—and thereby not building your foundation or following the fundamentals. In our fast-moving society, you must educate yourself and continue learning every day. And I don’t mean by heading back to school for an advanced degree, if that’s not something that interests you. Afterall, Mark Twain once said, “Never let formal education get in the way of your learning.”

Instead, seek out a mentor in a field you’d like to learn more about, join an investing group or club that will allow you to discuss strategies with others while getting your feet wet learning the process, enroll in free online workshops, and read as many books and blogs as you can.

By learning the fundamentals, starting small, and gaining experience, you too can become a savvy investor.