Posted by: Daryl & Wendy Ashby | October 9, 2010

A Guide to Investment Success

Ever fantasize about walking away from your day job and investing your way to an early retirement? Well, it’s time to stop dreaming. Financial success in real estate investment may be closer – and easier – than you think. In the first in a series, Investment 101, Shane Buckingham talks to REIN President Don Campbell to get you started on your way (And for all you veterans, a little tune up never hurts.)

If you’ve been reading stacks of real estate books and attending numerous get-rich-quick seminars believing you’re going to find the secret to never-ending wealth, you may need to take a little time to deprogram yourself.

Success in property investment isn’t achieved by hidden knowledge; rather, it’s by having realistic expectations and an understanding of what drives real estate activity altogether: economics.

Investigate, don’t speculate

Often, first-time property investors jump into the market based on a prediction made by a family member, friend or self-proclaimed expert. But that’s not investing, says Real Estate Investment Network President Don Campbell, it’s speculating.

“Don’t buy based on emotions because that turns you into a speculator. Don’t guess on the market, know the market by studying the area’s economic fundamentals,” he says. “Investing in a region or type of property without knowing what economically is supporting the value is speculation, not investing.”

Consider REIN member Wade Graham. His investment decisions are firmly based on REIN’s Authentic Canadian Real Estate (ACRE) system, explained in Campbell’s book Real Estate Investing in Canada.

Although he may have speculated a bit on his first buys, he soon learned understanding an area’s local economy is the only way to ensure an investment. By applying this strategy to his business, Graham was able to walk away from his job as a network administrator and work full time as a property investor.

Today, he has a portfolio of 15 properties generating more than $25,500 a month.

One area that speculation tends to dominate, Campbell says, is new construction. That’s why you, as a new investor, should avoid buying in developing subdivisions – since it leaves no room to negotiate a deal with the seller (the builder) and no way to increase the value of the property, unless there’s a rise in the region’s overall housing prices.

Campbell says all investment decisions should be based on two factors: economic fundamentals and a property’s ability to manage cash flow, which refers to the amount of income produced minus expenses.

Buying a new home fulfills neither of these qualifications, he adds. (Stay tuned. Finding properties that generate cash flow will be the topic of our Beginner Investors’ Guide for December’s

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