Size Matters: How Ultimate Fighting is Related to Real Estate Investing

In the past, I made the case that determination and technique are two key elements for success in any endeavor. To make the point, I told the story of Royce Gracie, the great Brazilian jujitsu master who has repeatedly beaten men far bigger and stronger than himself - even when these men were experts in martial arts ranging from boxing to wrestling, karate and more.

Now, I'm going to add to this idea. When you've demonstrated a determination to act and have developed your technique, or skills, size becomes a more important consideration too. This again, was shown by Royce's experience and that of the other fighters in the UFC (Ultimate Fighting Championship).

Royce, much slighter than most of his opponents, nonetheless won three of the first four UFC championships. Yet, as the championships progressed, the nature of the fighting changed.

The Secret's Out

Inspired by the success of Royce and other Brazilian jujitsu fighters, boxers and martial artists started to enter the ring with new grappling and jujitsu-like submission skills (joint manipulations and chokes).

Wrestlers now entered with submission techniques, crisp punches, and powerful kicks (mostly low and leveraged, not flashy spinning or flying kicks). Competitors (large and small) from different styles now realized they needed to add to their arsenal techniques from other styles - whatever worked, whatever was practical.

Great fighters like Randy Couture (a wrestler), Chuck Lidell (a kick-boxer) and Maurice Smith (a karate master) emerged and rose to the ranks of champion. But they achieved it only after developing the full range of fighting skills. When the UFC first began, there were no weight classes. But, now, weight classes began to develop.

Before, a man with toughness and great technique could defeat a far bigger opponent - just as Royce defeated the 270-pound Olympic-caliber wrestler Dan "the Beast" Severn. But once the very best of the big fighters also began to learn many of the formerly mysterious techniques, size once again began to matter.

Don't get me wrong. If you're a big guy, you still probably don't want to mess with a world-class 150-pound all-around fighter. But if you're a world-class all-around fighter yourself, you'll likely have a significant advantage over a world-class fighter who's 50 or 75 pounds lighter than you. You weigh a lot more when you lay on top of them. You pack more behind your punch.

The moral?

Determination and technique still matter first and foremost. You can win against competitors who are far bigger than you but don't have your technique or drive. But if you want to win the heavyweight crown (where the biggest purses are), you'll have to compete against people who have great technique and are very determined and very big. So you'll have to put on some weight.

How to Put on "Weight" as a Real Estate Investor And Go from Lightweight Master to Heavyweight Champ

Determination and technique are primary in all aspects of life.

Determination is what gets you to act. No woulda, shoulda, coulda's... no endless dreaming and a bunch of "on the other hands." You get off your butt and accept the challenges you must face in order to achieve your goals

Technique helps you meet those challenges successfully. In real estate, in particular, technique allows you to take an idea and turn it into a significant amount of money, equity or both very quickly.

You can buy a house under market value in a fast rising area. Put zero money down on the purchase, make some strategic, low-cost improvements and gain $55,000 to $70,000 in a year. You can do the same with a small multi-unit building and pick up $105,000 to $155,000 in a year. I know I've done it.

But once you've mastered technique and built up capital at the low end of the market, you can gradually move up the market to the bigger money. Only, be sure to move up with technique as your guide. If you go for size alone and forget how to buy right you can get clocked. But if you continue to use sharp real estate investing principles and work your way up to bigger properties, the rewards can be tremendous.

Here's why:

Let's say you've built up an investment property portfolio of $100,000. It's just a single house. And each year it produces about a 10% return on the asset (the house, that is). It goes up 5% in value; then you pick up 4% in net rents (rental income after all expenses and carrying costs). Then you pick up 1% or so in amortization (that's the equity you gain from the reduction in the balance of your mortgage loan).

That 10% might be a return of 100% or 200% or 1,000% or more on your initial investment. It depends on what your initial investment was. If you put a total of $10,000 in down payment and closing costs to buy it, you've gained 100% of your initial investment the first year. If you're only $5,000 out of pocket, you're up 200%. If you only forked over $1,000, you're up 1,000% on your initial investment.

And if you bought it with absolutely zero down (including closing costs) your returns in terms of percent are impossible to calculate. Somewhere in the neighborhood of infinity...

Fair enough, but now let's take the same scenario and apply it to a million-dollar property. The percentage returns again depend on your down payment. But the money is far bigger. Now you're gaining in the neighborhood of $100,000 a year. And as the net rents increase and the value compounds, your yearly gains "inch up" to $111,000, $122,100 and so on.

The point is, once you learn how to take control of an income-producing asset - at a price and with a loan that lets that asset pay entirely for itself (including loan costs, management, expenses, etc.) - you can now move up to larger assets, with greater income and greater equity creation year after year.

You're determined enough that you decided to act and not gnaw your fingernails, mumbling about "real estate bubbles." You've developed technique. So you understand that, yes, there are real estate bubbles. But you understand how to make profits safely during inflated markets... and are prepared to act for even greater profits when bubbles burst. You begin with value-buying and financing techniques that you implement at the low end of the market. And, when the time is right, you move up in weight class - where the purses are bigger.

So hats off to Royce Gracie, who demonstrated how determination and technique can help you conquer mountains. And hats off to Dan Severn, who returned to the ring as big and strong as ever - but with added skills, including black belts in sombo and jiu jitsu - and went on to capture the UFC crown.