This week I want to talk about some of the differences between Wall Street and Main Street investing. This is a topic I really love and which I find resonates with a lot of people. We all know what Wall Street investing looks like, but what about Main Street?
Main Street investing is more tangible; it involves the residences, shops, businesses, office spaces, storage units and other physical spaces that we utilize every day. These are all examples of alternative investments — something that conventional wisdom doesn’t tell us about.
If alternative investments are something you’re not familiar with, check out one of our previous posts that explains the I.D.E.A.L. model of investing.
But first, let’s back up and discuss some of the background work you need to consider with Main Street investing. I want to pause here for a moment and give credit to one of my mentors, Russ Gray. A lot of the examples and analogies I use come from and are inspired by Russ.
Do You Have Conviction?
Do you have the hope that something is going to work or do you have a conviction?
For example, In 2008, a lot of people lost money in real estate, but I would argue money was lost not because of the market, but how people were operating in the market.
Since I am a pilot, I am going to share an example related to flying. Let’s say you have never flown a plane before, but you are set-up to take on a seasoned fighter pilot. He has flown an infinite amount of times, and more than likely you’re going to get your butt kicked.
If you stand any chance, we should first even the playing fields, right? Let’s say the seasoned pilot is given a WWI fighter vintage plane with machines guns strapped on it, and you’re given the most modern, advanced fighter jet on the market. Now, do you stand a better chance?
Absolutely not! You still don’t know how to get the plane off the ground. So, what does this have to do with real estate? It’s not the vehicle that matters, it is the operator. You have to know what you’re doing, and conviction matters.
What Kind of Investor Are You?
Are you a default saver because you’re used to the Wall Street model?
We’ve all been conditioned under this strategy. But, as a default saver, you’re likely not used to learning about what you’re investing in — that’s the norm on Wall Street. If that’s your mindset, you’re better off steering clear of real estate.
Main Street investors need to be proactive and do their due diligence. It’s not a blind investing game.
Net operating income is crucial to the value of your real estate.
Net operating income is your revenue minus expenses. It’s what you have left after you pay all your bills and expenses for a given property or business.
It is what makes a piece of real estate what it’s worth. Yes, there is an appraised value, but if you’re not getting an income from it, it’s not worth much. Start considering real estate investments from the perspective of the income you are generating. Much like owning a business, when you start off you simply earn income off of your own efforts. As your business grows, you start to earn off the efforts of others, as well.
Investing in real estate is much the same — you are investing in the efforts of others, such as your renters or tenants. Their efforts in the workforce are what make your net operating income.
Real Estate Is Essential
Unlike products on Wall Street, real estate is essential and isn’t going away anytime soon. People will always need places to live, work, shop, visit and store their things. Real estate works because it is an essential commodity.
Hopefully, this give you a little background into “Main Street” investing and how it differs from Wall Street.
Next week, we will dive deeper and talk more specifically about the benefits of Main Street investing and why you should care about it.
Until then, if you have questions or would like to know more about starting your journey to financial freedom, we’re here.