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First Principles of Real Estate Investing

Updated: Aug 29, 2023

Rule #1: You have to invest.

I had the unique opportunity on this trip to Puerto Rico to have a presentation for Reggaeton artists, high-end hair stylists and other unique entrepreneurs. I have history with the Reggaeton genre, having started the first-ever blog where I interviewed artists back before Twitter and Facebook gave us access. I have an affinity for the business behind the music and I have seen artists come and go because they didn't understand it. One of the artists at the presentation had been a sensation in the early 2000's and by 2020 he's largely forgot about. And so is his bank account.

While this story saddens me, I quickly went into "Problem Solving" mode. This is the whole reason I was standing there, in front of them, so that we could raise awareness in them that money needs to be invested in order for it to have lasting power. Most artists live in the present, and see the future as this imaginary reality, as opposed to something you create, cultivate and design. As these artists started to generate more and more revenue, it was important to teach them why you have to invest your cash. This is not an option, it is a rule.

There are several reasons why you must invest your money, including:

  1. Growing Your Wealth: Investing your money can help you grow your wealth over time. By investing in assets such as stocks, bonds, real estate, or mutual funds, you can potentially earn a return on your investment that is higher than the rate of inflation, allowing your wealth to grow over time.

  2. Building Financial Security: Investing your money can help you build financial security for the future. By investing in assets that have the potential to appreciate over time, you can potentially build a nest egg for your future, providing you with financial security in retirement or in case of an emergency.

  3. Diversifying Your Portfolio: Investing your money can help you diversify your portfolio and reduce your overall risk. By investing in a mix of different assets, such as stocks, bonds, and real estate, you can potentially reduce the impact of market fluctuations on your portfolio.

  4. Meeting Long-Term Goals: Investing your money can help you achieve long-term goals, such as buying a home, funding your child's education, or saving for retirement. By investing your money in a systematic manner over time, you can potentially accumulate the savings needed to achieve your long-term goals.

What are First Principles?

"First Principles" is a term used to describe a way of thinking that involves breaking down complex problems or systems into their fundamental building blocks. The idea behind first principles thinking is to understand the basic, underlying principles that govern a particular subject, rather than just relying on assumptions, intuition, or preconceived notions.

First Principles thinking is a fancy way of saying “think like a scientist.” Scientists don’t assume anything. They start with questions like, What are we absolutely sure is true? What has been proven? In theory, first principles thinking requires you to dig deeper and deeper until you are left with only the foundational truths of a situation. In practice, you don’t have to simplify every problem down to the atomic level to get the benefits of first principles thinking but instead you just need to go one or two levels deeper than most people. Different solutions present themselves at different layers of abstraction.

In the context of philosophy, first principles are considered to be the most basic and irreducible elements of reality. In other fields, such as physics, first principles refer to the basic laws and concepts that govern a particular area of study.

In business and investing, first principles thinking involves breaking down complex investment strategies and systems into their basic components, in order to understand how they work and how they can be improved. This way of thinking helps investors make informed decisions and minimize risk by considering all the factors that can impact their investments. -Duamel Vellon

The First Principles of real estate investing are the fundamental building blocks that guide investment decisions and help investors achieve their goals. Some of the key first principles of real estate investing include:

  1. Location: Location is one of the most important factors in real estate investing. The location of a property can significantly impact its value, demand, and rental income.

  2. Market Analysis: Understanding the local real estate market, including the supply and demand dynamics, is crucial in making informed investment decisions.

  3. Due Diligence: Thorough due diligence, including a thorough examination of the property, the market, and the financials, is necessary to minimize risk and maximize returns.

  4. Risk Management: Real estate investing involves risks, and it is important to have a strategy in place to manage those risks, such as diversifying investments and performing thorough due diligence.

  5. Financing: Financing is an important aspect of real estate investing, and it is important to have a solid understanding of the various financing options available and how they can impact the overall return on investment.

  6. Understanding Cash Flow: Real estate investing is all about cash flow, and it is important to understand the sources of income, expenses, and the net cash flow generated by the property.

  7. Long-Term Perspective: Real estate investing is a long-term game, and it is important to have a long-term perspective and be prepared to hold the property for several years to achieve the desired return on investment.

These are the First Principles of real estate investing that we use at Ten15 Capital to ensure an opportunity that is presented is indeed in alignment with our ideals. As shown here, this will provide a foundation for making informed investment decisions, managing risks, and maximizing returns in the real estate markets that we serve our investors in.


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