Rich Dad Education Blog

At the beginning of any new endeavor, one can easily become overwhelmed. Even the most excited and energized individual can become frustrated in the initial stages of real estate investing while simply putting together a power team, learning comps, and making offers. Couple these fundamental building blocks with the process of learning the basic principles of real estate investing and it may not seem like there is the time available to the new investor to succeed. Fortunately, as thousands of real estate investors can attest, real estate investing is a learn-as-you-earn business. As time passes, your real estate investing will develop a foundation, your power team will materialize, and your skills at making offers and evaluating properties will become fine tuned. If you are a new real estate investor and believe this to be true, then one simply needs to get through the initial frustrating stages that new real estate investors often encounter.

One of the easiest ways to mitigate potential frustration in the initial stages of real estate investing is to focus your initial energies on a specific location/area and develop specialized knowledge of that area. Many people have used the analogy of diving into the pool and learning to swim to explain how to succeed at real estate investing. While this analogy certainly holds water, one also doesn't simply want to be doggie paddling through their initial first few years either. It is tempting, and many succumb to this temptation, to want to learn about their whole city or region right off the bat. The figure of speech, "jack of all trades, master of none" comes to mind in describing the skills that these individuals may develop in evaluating properties.

Choose a Farm Area

There is no way around it—to become a successful real estate investor, one must master the art of determining property values. Whether you specialize in rehabbing, wholesaling, foreclosures, or any of the other numerous real estate strategies at your disposal, determining property values is a fundamental skill that must be learned. The rate in which you can practically apply this skill increases dramatically when you start off with a manageable area to start your evaluations.

This manageable area, often called a farm area, is likely to be a section of the city you live in. There is no exact formula to determine how large this should initially be, but for beginning investors there is no shame on erring on the small side. Choosing a smaller sample to study not only has the psychological benefit of not becoming initially overwhelmed, but also the practical benefit of learning your first area well. This is good advice even for the most energized new real estate investor. If you error on the smaller side, you may find after a few weeks that you need to expand it and can easily do so by adding surrounding neighborhoods.

Immerse Yourself in Your Farm Area

In time, successful real estate investors are so tuned into the ebbs and flows of the areas they invest in that they become walking web portals of information. Through study and hard work they develop a feel for their area that simply cannot be taught, it can only be acquired. Without the aid of an external device they can tell you in their area what houses sell for, what they rent for, what the trends are, and what areas are hot (or cold). With this knowledge, they also know within a few minutes of evaluation whether a property in their area is a good deal or not.

The surest way to start developing this feel for a particular real estate market is to immerse oneself in that market. This consists initially of good old-fashion leg work. Drive around your farm area and make a list of all for sale, vacant, run-down, and rental properties. Make appointments to see properties that are for sale and attend open houses. You are not necessarily looking for a good deal during this stage (though you wouldn't complain) but you are trying to learn your farm area.

Through a real estate agent or web service, attempt to gain a picture of what the real estate market has been like in your farm area for the last year. Gaining information on what homes have sold for and the average amount of time a home is on the market before it sells provides critical information for which to determine your initial analysis of your farm area. Since one of your strategies for increasing cash flow is likely to be through the landlord route, you also want information on what homes rent for in the area. With all of this information remember that the more recent the sale, the more relevant the data is.

With a combination of research on real estate deals within the last year, investigating the current homes in your farm area, and following your real estate farm area from that point, you will begin to have an initial picture of the real estate market in your chosen farm area. Naturally there will be many nuances that you fail to uncover at first. For example, over time you may discover that certain neighborhoods may have homes that sell relatively fast and other neighborhoods that take longer. There may be factors involved in this that you simply won't learn until over time trends appear and your feel for your area is developed. These are the subtleties that will make you an expert in that area over time. For now, these other initial states should provide a groundwork to adequately determine property values in your given farm area and recognize good deals when they are presented.

Moving On

Eventually you will feel comfortable with the real estate activity in your area and be able to determine the property values with ease for your first farm area. You likely will have a sound feel for why certain homes move faster than others. At this point you will naturally want to expand your farm area. Don't be afraid to take this process gradually as well, even though your own learning curve of evaluating properties has quickened.

Being able to determine properties is just one step on your journey to becoming a successful real estate investor. However, it is an important one and taking the time to focus on a single farm area in the nascent stages of your real estate career is probably a prudent course of action. Real estate investing is indeed a learn-as-you-earn venture and a concentrated effort on a specific farm area is perhaps the surest way to help the beginning real estate investor start off on the right foot.

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The German-born American architect Ludwig Mies van der Rohe is attributed with coining the phrase "less is more." This is a fact that I was unaware of until I Googled it as I had always attributed this saying to my art history teacher my freshman year of college. I only remember two things from that class. The first thing was wondering whether the state required professors to use the saying less is more a requisite number of times each class period. The second thing I remember is the exaggerated manner in which the professor separated his hands as he slowly emphasized the words less and more. It was as if 18 and 19 year olds needed a visual depiction of what the concepts less and more actually were. Needless to say, I did poorly in that class.

Sometimes the lessons parents, professors, and others try and teach us take years to sink in. Decades later I must apologize to my professor as I have come to realize that 18 and 19 year olds actually do need visual depictions for just about anything to sink in. The years have also taught me to believe in the concept of less is more. While this has varied meaning in my life, it perhaps has no better practical application then how I manage my financial market watch list.

The Watch List

For those new to or just beginning in the financial markets, your watch list is how you organize the stocks you follow. Ideally, you put stocks that interest you on your list and periodically check them (anywhere from multiple times a day to weekly depending on the type of trader you are) to see if trade setups have occurred that would warrant you entering the trade. Most good financial market software programs will have some sort of program that allows you to create and manage this list. These programs ideally allow you to click or double click on the stock you are following and pull up the chart to perform whatever technical analysis you need to do.

So ideally your watch list is a comprehensive list of stocks that you follow and check systematically in order to easily identify trade setups that may occur. In practice, watch lists often become a jumbled mess of symbols and numbers whose creators often stare at for minutes in a lost haze. I know several traders, who have tremendous skill in analyzing market data, whose watch lists are comprised of hundreds, if not thousands of stocks. When I run into them and they have their laptops handy, they often stare blankly at their own lists trying to remember where anything is. When they do talk on a stock, there is oftentimes a depth lacking in the conversation. These traders are perhaps hindering their earning ability by not applying the principle of less is more to their own data management.

I know other traders, very successful ones, who do very well for themselves by simply trading a few stocks. For the novice it may seem counterintuitive that a trader can succeed by only trading a handful of stocks. After all, there are thousands of stocks and wouldn't knowledge of as many stocks as possible maximize your chance of finding proper trade setups? The advantage these traders have is that they know their stocks intimately. Successful traders that trade only a handful of stocks rarely need to even look at their charts to talk about the short, intermediate, and long-term trends of the stock in question. They can tell you where support and resistance points are, potential trade setups that may occur, and how the stock is performing against its sector and larger market.

This in-depth knowledge also frees up time for traders to pursue other interests, either on a professional or personal level. Some traders get so caught up in the pure volume of trading that it can engulf their lives. I promise you if all you want to do is search stock after stock looking at potential trade setups, there is plenty of information for you to do that. Most of us want to use the financial markets to pursue other interests. Having a manageable watch list of stocks that we are very familiar with allows us to enter the trades we do enter with confidence. There is no prize or bonus money for those that have hundreds of stocks on their watch list. I could make a very strong argument that having that large of a list leaves you susceptible to worse trades and falling prey to information overload.

Your Watch List - How Big and Where to Start?

There is no universally correct size to your watch list. There are numerous variables that you the trader bring to the table with your personal and professional commitments; however, the following is a good guide on how to start and build your list:

1) Start out with one stock. Before you move on become well acquainted with that stock. What have the trends been? Learn its various support and resistance levels. How has it performed against the larger market and sector it is in? When is its earnings? Identify activity before and after its last few earnings.

These are just a few things you can do to become acquainted with the stock. As you become familiar with trade setups and entry points, you will start to indentify historically when these occurred on this stock. It can take surprisingly very little time to gain a solid background on the technical history of any given stock. With a touch of experience you will be able to identify the high probability trade setups that occur with your stock and make your first trade.

2) Build slowly. Slowly is obviously a relative term as someone may consider one stock a week too much and others want to add one an hour. Just remember less is more in this area, and we don't ever want to be the trader with a 1,000 stocks on their watch list.

3) Build until you feel uncomfortable and then pull back one. We should always strive to maximize our potential. We are not striving to be lazy traders. But if we reach that point where we feel like we can't keep on top of the stocks on our list, don't be afraid to pull one or two off your list. If you feel on top of things, then add one or two back—your watch list should never be static. Adjust with the events in your life and keep the number flexible.

Limited capital and time make an overly cumbersome watch list just plain dumb. Apply the principle less is more to your watch list and you may find that the quality of your trades go up. You may also feel more in control and enjoy trading more. One can never discount the benefits of a sound psychological state when trading.

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The economy isn’t going your way—now’s the time to find what your positive spirit is made of.

Just a couple years ago it seemed the ceiling was unlimited. People were flipping houses like pancakes, the Dow Jones didn’t seem to know a stock it didn’t like and discretionary income didn’t exactly call for a whole lot of discretion. Now, however, it’s not calling at all. Unemployment is trending in ways that bring up the term depression, and not just in regards to the way you’re feeling right now. Saying times are tough is kind of like saying Mike Tyson is irritable. Still, now’s the time to remember what true wealth is. To appreciate all the incredible people around you. And, if you don’t have any, to make an investment in finding some. Now is the moment to find out what being positive really is.

Defining Positivity

Positivity at its core is not a feeling about the present as much as an attitude towards the future. It’s much easier to step with confidence when you know you’re heading to some place even better. If you aren’t feeling good about the strategies you’re utilizing towards your goals, step back and assess them with a few questions. Are you taking steps which are truly helping your career? Could you improve your education? But it’s also about taking on tasks that don’t just make you more money but improve your knowledge about a subject matter which will be in demand in the future. Furthermore, it comes down to aligning yourself with mentors who can lead you where you want to go. Though your job shouldn’t define your life, there’s little denying its place when many of us spend the majority of our waking hours focused on it.

Now that you’re coming up with a new plan for 9 to 5, it’s time to consider the rest of the ticks on the clock and whether your personal life is all it can be. Are you connecting as well as you can with your significant other, especially in a time when you need to pull closer than ever before? If you don’t have a significant other, then you need to take stock on whether you’ve done everything you can to get one(only if you want one, of course).

“You need to find a way to separate yourself from your problems,” says Shirley Babior, a co-author of Overcoming Panic, Anxiety & Phobias. “It’s important to remember that they’re usually only temporary. It’s about separating between what’s a real problem and what’s everyday life.” One way to accomplish this is by creating a case study in your head of previous moments that seemed to be unbearable but which ended up being easier than you thought. By reminding yourself that you’ve already handled something of a similar nature it will make it that much easier for you to do it this time around.

One important way to stay positive is to deal head-on with what’s bothering you. Often it’s a daunting task that just seems too difficult to accomplish. But by writing down each individual step it won’t seem nearly as bad. Also, remind yourself that not everything can be accomplished in a day, so that way you don’t overwhelm yourself, one of the easiest ways to get down about the world around you.

Most importantly list all the positive things in your life. Usually at the top are the people in your life. If you don’t have good people, consider making that more of a priority. Positive human contact has healing powers which have been documented time and time again. In addition, try to see your problems on a global scale. You remember the saying about the man without shoes who complained until he saw the man without feet? Odds are you probably have both, or if you have a job you’re already ahead of many who are suffering through these difficult times.

Another strategy is to remember a time when everything came together for you. Think about how you acted that created that great time. How did you feel? What was the environment around you? Maybe there’s even something you can do for yourself that can recreate that feeling. Maybe there was something you did that day that takes you back, maybe certain clothes you wore that made you feel good about yourself. Though we don’t recommend a thousand banana splits, it’s easy to find ways to recreate a great mood and put us back into one.

Being positive also means being goal oriented. Make two lists, one with short-term, attainable goals and the other with long-term goals. Write down ways you can fulfill these goals, but not just in terms of strategy but in how you’ll feel making strides toward these achievements. What negative thinking will you be able to avoid? What traps in the past will you fall into less this time and how? Remember, don’t expect perfection, just improvement. When you achieve one of your goals, acknowledge it by writing something positive about how you achieved it and how much better it makes you feel about your chances for achieving the next goal.

A final strategy which can help is to avoid dwelling. J.J. Redick, who was one of the best regarded college basketball players of recent years but has had his struggles as a pro, tries not to look behind him. “I try to focus on what I can do going forward,” he says. “It’s good to learn from mistakes you’ve made but then you have to move on and do better.”

But it’s not just about you. When we put the focus all on ourselves we can only feel good when things are going our way. Yet what if we volunteered our time once in a while? What if we helped a friend with a problem they were having? The more you become someone who helps others, the more you can define success through something other than your job or bank account.

Okay, Be Negative (Once in a While)

Although we’ve been giving you strategies to stay positive, sometimes it’s important to
go negative. “If you don’t get out your frustrations now and again they will build up to the point of meltdown,” says Babior. Find a pillow to take it out on or yell into the mirror—there are times where you just have to get it out before it gets you!

Having a positive attitude isn’t about being perfect, it’s about recognizing the difference between a bad mood and a generally bad outlook on life. Look at normal things which don’t go your way—from waiting in a long line to getting something other than what you ordered—does it bug you a little or does that one problem destroy the rest of your day? If it’s the latter, it’s time for a perspective change. Nobody has everything go their way, so learning to deal with disappointment is one of the most positive skills you can ever acquire.

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