Keith Weinhold explains why most new real estate investors get the order wrong: they pick a property first instead of starting with their goals, choosing a market, and hiring a team. Market selection and a good property manager matter more than the specific property itself.
Most people get it completely backwards. Instead of going 1, 2, 3, 4, they go 4, 3, 2, 1. First they got passionate about a property and then they buy a property maybe because it looks pretty, and then it's a little bit too late. They realize, oh, they don't want to be getting texts from tenants. So then after they've already bought the property and it's too late, then they go out and try to find and see if there's a good manager in that market. And after that, then they try to figure out, oh, did they even buy in the right market? And then it's back up to number one, like, does this property even do what I wanted it to do for me, I wanted it to provide, say, passive income. And this is taking so much of my time.
I want to ask you, one of the other things that you had mentioned was stop looking at properties because the Property is only 4th most important. Can you share a little bit more about that?
Yeah, this blows a lot of people away. To a person that's new and all enthusiastic about real estate, I usually need to advise them with something they never imagined that they would hear. Stop looking at properties. They're like, well, wait a second, what are you talking about? Stop looking at properties? In order to benefit from direct investment in real estate in the five different ways real estate pays, which is a term that I coined, that flip laid out in the bio there, in order to get all those benefits, I need a property. Well, my point is. Whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa. Slow down, slow down. The property, like Danny said, it is only the fourth most important thing in real estate investing. That's why you temporarily need to stop looking at properties. So let's. To the beginner, I often tell them, you know, let's get your priorities straight and then we can start looking at properties again. Because the number one thing in this real estate investment is you. What do you want real estate to do for you that's at the top? Are you looking for appreciation or cash flow, which is a common answer, or tax benefits? Are you looking for a property that gives you a lifestyle benefit that you can use, you know, one month a year in, in Cancun or something? What do you want real estate to do for you? Once you think that through, you know that that's number one. The second most important thing is the market that you're going to buy in. Now we can think of market in a few different ways, different asset types, like a trailer park or short term rentals or large apartment buildings or single family Homes. We can think of the market that way. But another important way to think of the market is that geographic market. And I talked about how I like to buy in MSAs, Metropolitan Statistical Areas, various ones for diversification throughout the United States. I generally avoid markets that are really rich in commodities or have a big part of their economic base be tied to the military because those things are volatile. I mean, military involvement that can fluctuate a lot based on presidential administrations and then commodities. I mean, just imagine one of the worst markets for me to invest in at all would be a small ho dunk town of 9,000 people. That's not close to an MSA where 30% of that town's employment is tied to the zinc mine or the tungsten mine. Because now, you know, one third of the economic base of that community is tied to the fortunes of zinc or of tungsten. So I like to be in the bigger markets where there's some ballast. And I like to see markets that have long term sustainable drivers like technology or medical or a lot of distribution jobs. I know you guys do a lot of business in Ohio. That's really one of Ohio's chief market drivers is distribution. You can't outsource distribution jobs over to Taiwan or China. They need to be right there in that geography. For example, where you could use the Ohio river and the Great Lakes and all the great transportation access that Ohio has. But this is why the market is more important than the property. You could buy a, you know, a mansion in a, in a swamp in the middle of nowhere, and who you going to get to rent that thing? So that's why the market's the second most important thing. And what's third most important before the property? Fourth, what's third most important is that team of professionals that you surround yourself with. And this could be your mortgage loan officer or your 1031 exchange qualified intermediary. But really that most important team member, the glue that makes all this stick together, is a competent, communicative property manager. All right, so once you've got that set, you the market and the team, okay? Now fourthly, you can finally start looking at properties. The property matters, definitely, but it's only the fourth most important thing. And you know what's so funny? Flip and Danny. Most people get it completely backwards. Instead of going 1, 2, 3, 4, they go 4, 3, 2, 1. First thing that's right about a property, and then they buy a property maybe because it looks pretty, and then it's a little bit too late, they realize, oh, they don't want to be getting texts from tenants. So then after they've already bought the property and it's too late, then they go out and try to find and see if there's a good manager in that market. And after that then they try to figure out, oh, did they even buy in the right market? And then it's back up to number one. Like, does this property even do what I wanted it to do for me? I wanted it to provide safe passive income and this is taking so much of my time. So again, this is why the property is only the fourth most important thing and to review the three more important things in order. The hierarchy is you, the market, and the team.
I love that it mirrors so much of what Flip and I say all the time when they ask the where do I start? Which path is right for me? Who do I trust? We always talk about, hey, a lot of people don't answer the right questions when they get started and you just put it in perfect order.
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