What is the Difference Between a Real Estate Investor and a Speculator?
You might be thinking, “Finally, someone is going to answer this question, once and for all!”
Or perhaps, it’s a question you haven’t asked yet. Regardless, any property investor should be aware of this distinction—or at least the need for it. Unfortunately, it is difficult to discern between investing and speculating in today’s world, mostly because people have confused the two for decades. And truthfully, sometimes they overlap. But, thinking about this distinction offers valuable insight.
The simple answer is that an investor expects that they will make money on their property investment; a speculator hopes that they will.
From this perspective, it’s about mindset. But, we know that mindset informs action and that is what, ultimately, will separate the investor from the speculator—the actions taken in the process of real estate investing and what informs those actions.
Scott McGillivray (of Income Property fame), elaborates on this:
“A successful real estate investing model shouldn’t just have one way to make money. My business model has up to four different ways to make money… and the number one indicator I look for is not market value but positive cash flow… and that calculation is completely different . . . Using cash flow as an indicator to whether a property is a good investment or not helps protect a buyer from being stuck in a scenario where not only is the value not there, they’re actually losing money.”
Kenny Yang builds on this idea by paraphrasing Warren Buffet:
“An investor is one who seeks return from the underlying asset itself, whether earnings/dividends from the underlying company for a stock or rent from a property, if it is real estate. A speculator, on the other hand, seeks returns from pure price appreciation.”
When we think about it in these terms, another important distinction comes to mind:
Investors are more inclined to look at what they know and what they have, right now, to inform their growth. Speculators look down the road and base their choices more on prediction.
We could explore this topic more in depth, but the takeaway really is about making deliberate choices with your property investment. Focus on what you know, not on what you are inclined to predict. Bounce your ideas off of members in your investment community who also have concrete knowledge at hand—other investors, property managers and real estate agents.
Of course, there will always be factors that you cannot control in an investment—those are often what make the difference between a good investment and a bad investment. But, real estate investment is about giving you more control over your finances—so why not start with the control you already have?
