Have you ever wondered why some real estate investors seem to make it all look so easy? We have all heard the stories about how one investors made over $100,000 in a week by flipping a house or retail space. Or maybe about how another one bought a multimillion dollar apartment complex and walked away with cash at closing.
So how do these people do it? And is it something the average person off the street can learn to do? Well, those are some of the same questions I had when I first started in the business. So I spent months of research and tens of thousands of dollars to learn what strategies these successful people use that the rest of us do not. What follows is a brief summary of what I learned. Some may surprise you, others may not. However, I found these to be common words of wisdom from every successful investor.
Real Estate Investing is a Business, NOT a hobby
Every successful real estate investor I know operates their endeavors strictly as a business, even if it’s just a part-time thing. This means setting up corporations, S-Corp, Limited Liability Company, Limited Partnership, General Partnership or typically some combination of these entities. Notice I didn’t mention Sole-proprietor? Talk to a knowledgeable real estate attorney in your area for a better idea of wich ones are right for you and your goals. Not only will the right enntities protect you and your ASSets, but will allow you to take advantage of certain tax advantages you would otherwise not have. If you stop reading here and take no other advice from me please, please do this one.
Build a Team of Experts
Few, if any business owners succeed without a team of experts to guide them. These people can save you tremendous amount of time and money and possibly even legal problems. Your business team should consist of a good real estate attorney who understands the state laws and an accountant. I recommend finding an accountant who is also a real estate investor if possible.
You should also have a realtor in each area you are considering investing in, an appraiser, a home inspector, an escrow company, a mortgage broker, other investors, a general contractor, and an insurance agent. There are other specialists you should also consider for special cases such as an architect, a surveyor, environmental company, etc.
Have a Plan
Develop a business plan on your real estate investing venture even if you are not new to it. After all, this is a business and few really reach their potential without a good plan. I promise you, spending a few hours putting it down on paper will be well worth it. And it’s always good to revisit your plan often to keep you on target.
Network, Network, Network
Real estate is people business. If you haven’t done so already, get good at schmoozing. Now I don’t mean the used car salesman type where you do all the fast talking. Join your local real estate investment club, become a member of a church if you aren’t already, volunteer with Habitat For Humanity, just get involved! Get to understand what the seller’s or Buyer’s needs are. This means listening! Get to know what other investors are looking for and who the local “players” are. You may be able to do a partnership on a deal or refer them to a deal that may not be exactly what you’re looking for. Above all, treat everyone you meet with respect whether they’re your team, sellers, or buyers and they will respect you. If you do these things, more deals will come your way then you can possibly handle. I think of a lot worse problems to have.
Know Your Market
Spend some time getting to know the areas where you plan to invest. Go to some open buildings and talk to the agent's listing them. Drive the neighborhood and look for the “For Sale By Owner” signs otherwise known as FSBOs. Look for buildings that appear vacant or in disrepair. Lean how much buildings go for in the area and what the local trends are. Talk to some of the local residents and business owners and learn what the community is like Is there crime in the area, how good are the schools, is the area growing, what are the local demographics? This information will serve you well when it comes time to invest.
Never Buy A Property Without At Least One Solid Exit Strategy
In real estate, you make your money when you buy not when you sell. So what am I trying to say here? For each offer you make, you should know exactly how you are going to make you money from it. It could be as a rental for which you should have a positive monthly cash flow. It could be as a rehab and flip for a profit. Or maybe you may offer it as a lease with an option to buy. Or it could be holding for the equity growth. Run your numbers for each strategy. If the numbers don’t work, don’t do the deal no matter how much you like the property!
Treat Your Agents Like Gold
Real estate agents can make or break your business and a good one is worth their weight in gold. They will do much of the legwork for you and bring you potential deals. They know their areas inside and out and can steer you away from a potential problem. They will even find you buyers for your properties as well as show it while you are out looking for more deals. And, they work only for commissions based on the sales price of properties that sell.
However, most real estate investors don’t buy and sometimes don’t sell property at full market prices. This could directly affect your agent’s commission and their motivation to support what you want can diminish. I suggest paying your agents commissions based on market price regardless of the ultimate sales price. Yes it may impact your profits some but you’ll have a very loyal agent. And guess who gets the first phone call when hot property comes up!
Don’t Be A Hog
The old saying goes, “Pigs get fat, and hogs get slaughtered.” The saying holds true in real estate investing as well. Many new investors make the mistake of trying to squeeze out the maximum profit out of every deal and then wonder why they can’t find any buyers. Don’t be afraid to leave something on the table for the next guy, especially if you’re selling to other investors. It’s better to make a lot of smaller profits over and over than it is to make one big profit. This strategy should have potential buyers lining up at your door when you have a property to sell.
Give Away 10-15% of Everything You Make
I can hear you now, “He said what?!” That’s right, give away 10-15% of everything you make. How you decide to do it is up to you, but I warn you, you may have to get creative. Steve, a mentor of mine follows this rule like a religion. In fact, on his very first deal he made about $5,000 which he needed desperately since he had recently lost his job. He was nearly bankrupt but still decided to give away some of his profits. He decided to buy his pastor a new suit, something he had enver had in his life. Even though Steve was excited about making the money, the look on his pastor’s face when he wore it for the first time made him feel ten times better. By the way, word got around very quickly and before you know it, he had three more deals in the works that profited much, much more.
Offers, Offers, Offers!
You’ll never make any money if you don’t first start with an offer. But for some reason, this seems to be the biggest hurdle for most new investors. I like to use the “Fire, Aim, Ready” approach to making an offer. Don’t spend a lot of time trying to figure out what the perfect offer will be. Just make one. Most of my offers are made without ever having seen the property. Remember, if the first offer doesn’t embarrass you, it’s too high. I now a very successful real estate investor in the Tampa area who once offered $1 for a $14 Million golf course! Okay, so he eventually bought it for a little over $2 million and the resold it a couple of weeks later for a tidy profit. It’s only after you have the property under contract that you should spend the time to determine if the price is right or not. Most successful investors will make 25 or more offers a week of witch maybe only two or three may eventually end being accepted. Of those, maybe one will make it to closing. But let’s see, one deal a week, $5-$10,000 profit each….you get the picture.
Like any business, real estate investing has its challenges. Sometimes deals fall through at the last minute, renters can be a real pain, or you find out about the sewer line collapsing at one of your properties that need $15,000 in unexpected expenses to fix it. There will always be obstacles to overcome but the rewards can be well worth it. So have fun with it! If you truly enjoy it, it will show on you and suddenly the problems don’t seem like such a big deal anymore.