Great real estate investors and agents have a hidden method of success. They focus on the process rather than the results. While it sounds counterintuitive, it isn’t. This is how they succeed in beating their competitors. In order to be highly successful in real estate investing, it’s important that you adopt that method as well until its second nature to you. This is how the very best businesses thrive. The power of this method is that when you’re busy focused on the process, you’ve got entire control of the situation rather than if you’re thinking about the results, or end goal.
You can’t control real estate
It is no secret that real estate is highly competitive. However, it is a business in which you have little to no control over many of the factors involved. You can either go through periods where you’re getting no ideals at all, and you can also go through periods where deals are taking an exorbitantly long time to close. This can cause your mind to wander. Many people tend to try to control situations, because they are anxious to arrive at the result or goal that they want. This means you may make many mistakes in a deal, or agree to things you may not have.
Don’t keep a chalkboard or scorecard
If you’re constantly adding up your wins and losses, you’re doomed to fail. If you focus only on your losses, you’ll eventually convince yourself you’re a failure. If you focus on how great you’ve been, you’re bound to get a big head, which can be fatal in this business.
For example when you close a deal, turn your attention to the next one rather than patting yourself on the back and going on a vacation. When something goes wrong, focus on the process. Keep in mind, that this mindset is a habit. Just as positive and negative thinking are developed habits. Any habit can be learned.
Have a solid exit plan
What are your plans for your property once you own it? Will you hold it until retirement? Fix it up and sell it? Refinance the property, take some cash out and invest the proceeds into more real estate? Convert the property to another use? These are your exit strategies. When you have solid investment exit strategies you have a better idea of how you will operate the property today.
Let’s say you want to keep the property as rental for now and convert it to a condominium when the condo market improves. Do you see how this decision will inform your renovation decisions? You might do very little renovating today (enough to attract good renters) and then do a high-end renovation (meeting the expectations of a condo buyer) at a later date.
You’ve got to network
Networking is the best way to expand your horizons especially if you’re building a real estate investing business. Who do your friends and acquaintances know? You can get warm referrals to successful investors by making a few phones calls. Don’t underestimate the value of building your network. Through networking you will:
- Meet and learn from other successful real estate investors (mentors)
- Discover new markets
- Find new contractors and service providers through referrals
- Continue your education
- Find investing deals that the public has no access to
A word about partnership in real estate investing
This almost seems like a no brainer, doesn’t it? If you have partners in your deals you know that you want to keep them happy. Right? Well . . . there’s a fine line between happy, content investors and those investors who want to run your business for you. It’s not unusual to have investment partners who have zero experience in real estate investing.
When you set up the groundwork and terms of your partnership at the beginning of your partnershipmost partners are happy to comply—with very little interference. Make your partnership structure clear from day one. For example, at the early stages of the investment process:
- Answer any and all questions about the property and the financials.
- Offer a tour of the investment property.
- Offer to let your team (such as your property managers) meet your partners in a short introductory telephone call.
- Promise (and keep your promise) to send quarterly updates on everything that’s happened with the investment over the past quarter.
- Hold an annual in-person meeting (a requirement of some partnership agreements).
- Outline the role of all participants in your partnership agreement.
Don’t buy an investment property based on emotions
Intuition and feelings have no place in real estate investing. Unless the property you’re buying will be your personal, primary residence don’t fall in love with the property. You must kick the tires and look under the hood of any investment property you’re thinking about buying. Run the numbers. Bring in the property inspectors. Know your rental market.
Be sure it will make a profit
When you invest in a rental property that you can immediately sell for a profit, you’ve made money the day you close. On paper anyway—of course you actually have to sell it to make real money. The idea is to negotiate a decent deal. Don’t overpay for the property. Don’t buy the first property you see—there are plenty of good investment properties available.
This strategy helps you rely less on forces outside of your control such as market appreciation or the economy. A good solid real estate investment is one where you buy at a negotiated price and then create added value through
Successful real estate investors do this:
1. Treat Investments as Businesses
It is important for real estate investors to approach their real estate activities as a business in order to establish and achieve short- and long-term goals. A business plan allows real estate investors to not only identify objectives, but also determine a viable course of action towards their attainment. A business plan also allows investors to visualize the big picture, which helps maintain focus on the goals rather than on any minor setback. Real estate investing can be complicated and demanding, and a solid plan can keep investors organized and on task.
2. Know Their Markets
Effective real estate investors acquire an in-depth knowledge of their selected market(s). The more an investor understands a particular market, the more qualified he or she will be to make sound business decisions. Keeping abreast of current trends, including any changes in consumer spending habits, mortgage rates and the unemployment rate, to name a few, enables savvy investors to acknowledge current conditions and plan for the future. Being familiar with specific markets allows investors to predict when trends are going to change, creating potentially beneficial opportunities.
3. Maintain High Ethical Standards
Realtors are bound to act according to a code of ethics and standards of practice policy, and real estate agents are held to each state’s real estate commission rules and standards. But real estate investors, unless they are associated with membership-based organizations, are not usually required to maintain a particular degree of ethics in their practices, as long as they operate within the boundaries of the law. While it would be easy to take advantage of this situation, most successful real estate investors maintain high ethical standards.
Since real estate investing involves actively working with people, an investor’s reputation is likely to be far reaching. In the case of an investor lacking in ethics, the consequences can be damaging, particularly over the long haul. Effective real estate investors know it is better to conduct fair business, rather than seeing what they can get away with.
4. Develop a Focus or Niche
Because there are so many ways to invest in real estate, it is important for investors to develop a focus in order to gain the depth of knowledge essential to becoming successful. This involves learning everything about a certain type of investment – whether it is wholesaling or commercial real estate – and becoming confident in that arena. Taking the time to develop this level of understanding is integral to the long-term success of the investor. Once a particular market is mastered, the investor can move on to additional areas. Savvy investors know that it is better to do one thing well than five things poorly.
5. Strive to be Good Customer Service Representatives
Referrals generate a sizable portion of a real estate investor’s business, so it is critical that investors treat others with respect. This includes business partners, associates, clients, renters and anyone with whom the investor has a business relationship. Effective real estate investors are good customer service representatives by paying attention to detail, listening and responding to complaints and concerns, and representing their business in a positive and professional manner.
6. Stay Educated
As with any business, it is imperative to stay up to date with the laws, regulations, terminology and trends that form the basis of the real estate investor’s business. Keeping current requires work, but it can be viewed as an investment in the future of the business. Investors who fall behind risk not only losing momentum in their businesses, but also legal ramifications if laws are ignored or broken. Successful real estate investors take the time and make the effort to stay educated, adapting to any regulatory changes or economic trends.
7. Understand the Risks
Those choosing to invest in the stock or futures markets are inundated with myriad warnings regarding the inherent risks involved in investing. Numerous agencies require disclaimers to warn potential market participants about the possibility of loss of capital. While much of this is legalese, it has made it clear to people that investing in the stock or futures markets is risky; meaning, one can lose a lot of money. Greenhorn real estate investors, however, are more likely to be saturated with advertisements claiming just the opposite – that it is easy to make money in real estate. Prudent real estate investors understand the risks associated with the business – not only in terms of real estate deals, but also the legal implications involved – and adjust their businesses to reduce any risks.
8. Invest in a Reputable Accountant
Taxes comprise a significant portion of a real estate investor’s yearly expenses. Understanding current tax laws can be complicated and take time away from the business at hand. Sharp real estate investors retain the services of a qualified, reputable accountant to handle the business’s books. The costs associated with the accountant can be negligible when compared to the savings a professional can bring to the business.
9. Find Help When They Need It
Real estate investing is complicated and requires a great deal of expertise to engage profitably in the business. Learning the business and the legal procedures is challenging to someone attempting to do things alone. Effective real estate investors often attribute part of their success to others – whether a mentor, lawyer, accountant or supportive friend. Rather than risk time and money solving a difficult problem on their own, successful investors know it is worth the additional costs to find help when they need it and embrace other peoples’ expertise.
10. Build a Network
A network can provide important support and create opportunities to a new or experienced real estate investor. This group of associates can be comprised of a well-chosen mentor, business partners, clients or a non-profit organization whose interest is in real estate. A network allows investors to challenge and support one another, and can aid significantly in advancing one’s career through shared knowledge and new opportunities. Because much of real estate investing relies on experiential-based learning, rather than on reading a book, for instance, savvy real estate investors understand the importance of building a network.
The Bottom Line
Despite abundant advertisements claiming that real estate investing is an easy way to wealth, it is in fact a challenging business requiring expertise, planning and focus. In addition, because the business revolves around people, investors benefit in the long run by operating with integrity and by showing respect to associates and clients. Tough it may be relatively simple to enjoy short-lived profits, developing a viable real estate investing business that can last for the long-term requires additional skill and effort.