A couple of years ago, an American friend of mine went on vacation to Italy with the family and he tried authentic Neapolitan-style pizza for the first time. He was speechless! The pizza amounted to a unique culinary experience and had nothing whatever to do with its gooey American counterpart he had taken out thousands of times. “How is it possible – he asked the shopkeeper – that something made the same way from the same ingredients, can be so deliciously different?” The shopkeeper’s answer was as brilliant as it was obvious (feel free to read this in an Italian accent in your mind) :
Well, there can only be three reasons why the pizza is better: The ingredients, the oven and the cook.
The wise shopkeepers words make for great real estate investing advice. When you invest in real estate long term, the difference between success and failure also comes down to the ingredients, the oven and the cook.
At first glance, one might think that authentic pizza has the same ingredients as its American cousin. But this couldn’t be further from the truth. From the hand kneaded and tossed dough, to the San Marziano tomatoes that make up the sauce and the fresh mozzarella di buffala – everything is superior. The unique textures and flavors that come as a result simply cannot be replicated without using similar quality ingredients.
In real estate investing, the “ingredients” are the properties inside your portfolio. As in the pizza example above, a fleeting glance at two portfolios might lead you to believe that they’re one and the same. But a closer look will reveal that properties inside a successful long term investor’s portfolio are at an entirely different level. The quality of the school district and location is much higher in a successful portfolio. The neighborhood amenities and proximity to thoroughfares and shopping are better. And most importantly, they are that way on purpose. A successful real estate investor knows the type of tenant she is trying to attract and what those tenants look for in a rental property – and she buys properties that fit that profile and produce good returns. No matter how knowledgeable an investor you might be – there is no way to replicate the performance of a quality real estate investment portfolio by using inferior properties. So, here’s a guide on how to find great investment properties.
But ingredients alone aren’t sufficient to make an authentic Italian pizza. In fact, if you took those same ingredients and tried to bake it in your home oven, the results would be underwhelming. Authentic pizza requires an oak fired, stone oven that heats up to 905 degrees Fahrenheit.
In real estate investing, your oven is your overarching strategy. We call ours, The Blueprint. Without a solid strategy that is tailored to your goals, you won’t reach them even if you manage to buy the right type of properties. What makes a real estate investing portfolio tick is how all the assets within the portfolio work with each other. If you buy good properties but they aren’t weaved in a good strategy you lose the synergy that compounds the success. As a basic example, if you purchase 40 year old properties in good locations with good school districts, you won’t reach retirement by the target date because the increasing capital expenditures (major repairs) will eat up the cash flow.
And yet, even with the right ingredients and the right oven, there’s one more piece missing. You still need a great cook with the know-how and experience to make great pizza. The speed and pressure during the kneading process, the hand tossing, the thickness off the dough etc. are all dependent on the skills of the cook. The final result won’t be the same if the cook is an amateur.
In real estate investing, the cook is the person advising you about your real estate investments. Or it could be the investor herself if they’ve chosen the DYI route. So let me ask you, who’s advising you about your real estate investments? Is it someone who’s just a couple of chapters ahead of you in the book, or a true pro that brings value to the table every step of the way? And if you’ve been flying solo, how’s that been working out for you? Are you on track to achieve your goals or have they been swept aside because you don’t think it can be done? I’m here to tell you that it can – but you need the right “cook” alongside you.