Have you ever wondered why some real estate investors seem to make it all look so easy? We’ve all heard the story of how an investor made over $100,000 in a week flipping a house. Or maybe it’s about how other people buy multi-million dollar apartment complexes and walk away with the cash at closing.
So how do these people do it? And is it something an ordinary person can learn? Now, those are some of the same questions I had when I first started this business. So I spent months of research and tens of thousands of dollars learning what strategies these successful people used that the rest of us don’t. The following is a brief summary of what I learned. Some may surprise you, others may not. However, I find these to be common words of wisdom from every successful investor.
1. Real Estate Investing is a Business, Not a Hobby
Every successful real estate investor I know runs their business strictly as a business, even if it’s only part time. This means setting up a Corporation, S-Corp, Limited Liability Company, Limited Partnership, General Partnership, or usually a combination of these entities. Notice I didn’t mention sole proprietor? Speak with a knowledgeable real estate attorney in your area to get a better idea of which one is right for you and your goals. The right entity will not only protect you and your Assets, but also allow you to take advantage of certain tax advantages that you do not have. If you stop reading here and don’t accept any other suggestions from me, please do this one.
2. Build a Team of Experts
Few, if any, business owners succeed without a team of experts to guide them. These people can save a lot of time and money and maybe even legal trouble. Your business team should consist of a good real estate attorney familiar with 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, appraisers, home inspectors, escrow companies, mortgage brokers, other investors, general contractors, and insurance agents. There are other specialists that should also be considered for special cases such as architects, surveyors, environmental companies, etc.
3. Have a Plan
Develop a business plan for your real estate investment venture even if you are not new. After all, it is a business and few really reach their potential without a good plan. I promise you, spending a few hours putting it down to paper will go a long way. And it’s always good to review your plans frequently to keep you on target.
4. Network, Network, Network
Real estate is a people business. If you haven’t already, get good at kissing. Now I don’t mean the used car salesman type where you talk fast. Join your local real estate investment club, become a member of a church if you haven’t already, volunteer with Habitat For Humanity, get involved! Understand what the seller or buyer needs. This means listening! Get to know what other investors are looking for and who the local “players” are. You may be able to partner on a deal or refer them to a deal that may not be what you are looking for. Most importantly, treat everyone you meet with respect whether it’s your team, sellers or buyers and they will respect you. If you do these things, more deals will come your way than you can possibly handle. I can think of a lot worse problems to have!
5. Know Your Market
Take time to get to know the area in which you plan to invest. Go to some open houses and talk to agents. Drive into the neighborhood and look for a “For Sale By Owner” sign otherwise known as FSBO. Look for homes that appear empty or run-down. Learn what housing prices are in the area and what are the local trends. Talk to some of the locals and learn what the community is like. Is there crime in the area, how good are the schools, is the area growing, what is the local demographic? This information will serve you well when it comes time to invest.
6. Never Buy Property Without At Least One Solid Exit Strategy
In real estate, you make money when you buy, not when you sell. So what am I trying to say here? For every offer you make, you must know exactly how you are going to make money from it. This can be a lease for which you must have a positive monthly cash flow. This can be both rehab and profit. Or maybe you can offer it as a lease with an option to buy. Or, it can be held for equity growth. Run your numbers for each strategy. If the numbers don’t work out, don’t do the deal no matter how much you like the property!
7. Treat Your Agent Like Gold
Real estate agents can make or break your business and the good ones are worth their weight in gold. They will do a lot of the hard work for you and give you potential offers. They know their area inside and out and can keep you out of potential trouble. They will even find buyers for your property and also show them when you search for more offers. And, they work only to earn a commission based on the sale price of the property sold.
However, most real estate investors do not buy and sometimes do not sell properties at full market value. This can directly affect your agent’s commissions and their motivation to support what you want can be reduced. I recommend paying your agent a commission based on market rates regardless of the final sales price. Yes, it may affect your bottom line, but you will have very loyal agents. And guess who gets the first phone call when the hot property pops up!
8. Don’t Be a Pig
The old adage goes, “The pigs grow fat, and the pigs are slaughtered.” The adage holds true in real estate investing as well. Many new investors make the mistake of trying to squeeze the maximum profit out of every deal and then wondering why they can’t find a buyer. Don’t be afraid to leave something on the table for the next person, especially if you’re selling to another investor. It is better to make lots of small profits over and over again than to make one big one. This strategy should have potential buyers lining up at your door when you have a property for sale.
9. Give 10-15% of Everything You Earn
I can hear you now “What did he say?!” That’s right, give 10-15% of everything you earn. How you decide to go about 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 first deal he made about $5,000 which he desperately needed, since he had just lost his job. He was nearly bankrupt but still decided to give away some of the profits. He decided to buy his pastor a new outfit, something he had never owned in his life. Even though Steve was eager to make money, the look on his pastor’s face when he put them on for the first time made him feel ten times better. Anyway, word travels fast and before you know it, he has three more deals in the works that make him even more profitable.
10. Offer, Offer, Offer!
You will never make money if you don’t start with bidding first. But for some reason, this seems to be the biggest hurdle for most new investors. I like to use a “Shoot, Aim, Ready” approach to making offers. Don’t spend a lot of time trying to figure out what the perfect offer is, just make it. Most of my offers are made without ever seeing the property. Remember, if the first offer doesn’t embarrass you, it’s too high. I know a very successful real estate investor in the Tampa area who once offered $1 for a $14 million golf course! Okay, so he ended up buying it for over $2 million and selling it back a few weeks later for a pretty good profit. Only once you have the property under contract should you take the time to determine whether or not the price is right. Most successful investors will make 25 or more offers a week of which perhaps only two or three will eventually be accepted. Of these, perhaps one of them will reach closure. But let’s see, one trade a week, each $5-10,000 profit….you get the picture.
11. Have fun
Like any business, real estate investing has its challenges. Sometimes deals fall through at the last minute, tenants can be incredibly annoying, or you find out about a collapsed drain in one of your properties that requires $15,000 in incidentals to fix. There will always be obstacles to overcome, but the rewards can be well worth it. So have fun with it! If you really enjoy it, it will show on you and suddenly the problem doesn’t seem like such a big deal anymore.
There are more tricks to trading depending on which niche you decide to invest in. But the basics are the same overall. Apply these secrets and you too could become the next multimillionaire!
