The 5 Top Principles to Investor Longevity in Real Estate
© 2016 by M. Mitch Freeland
Investor longevity is a rarely achieved goal for many investors. The reason behind investor failure or disenchantment is the result of many factors; and two many to mention in this space. However, there are five powerful reasons for Investor longevity: (1) Research and diligence; (2) know why you are doing it; (3) don’t over spend; (4) take risks; and (5) managing assets consistently.
1. Research and Diligence. To make prudent investments you must do the appropriate research on the property, its location and the costs associated with fix-up and the price you will sell it for after it has been rehabbed. You must know the local economy and in what price points properties are selling quickly.
Much of your research can be completed online and the county assessors site and other real estate websites such as www.Realtor.com can be very useful. These sites will give you the necessary information as to prices and comparables, and the properties legal description.
Conducting due diligence on the full package; for example, local growth, business development, rental rates, city incentives and many other informative measures should be researched if you are new to an area and unfamiliar with investment property.
2. Know Why you Are Doing It. Follow your plan. Your plan has a great deal to do with your goals. Do you ever ask yourself, why are you doing this or that? And how do you reply to yourself? “I have to get it done, or, do you stop, think for a moment and reply: “Why am I doing this?” Then stop doing it and concentrate on doing something more worthwhile with your time and energy.
The purpose for what you are doing should be in the foundation of your goals. It must be a means to an end. And if it isn’t, then stop doing it and focus on activities that will move you toward the achievement of your goals.
3. Don’t Over Spend. Always look for ways to reduce your operating costs and keep close watch over your expenses. When you are rehabbing, set a firm budget and find ways to narrow the budget as you progress; it will not be easy, but keep this in mind. Your rental properties do not need the best fixtures and items--they need clean and functional items.
4. Take Risks. Have you asked yourself: What is the indirect costs of not taking risks? Everything worthwhile has a risk to it, and real estate investing can certainly be risky if simple rules are not followed.
Typically, the larger the risk, the higher the return, is a saying that is not always correct with real estate investing. A great deal of successful real estate investing is knowing more than the other fellow who is bidding on the same property or not bidding. Your knowledge of costs associated with repairs and current market conditions, your relationships with contractors, inspectors and mortgage brokers, and your money management skills are the advantages you possess over others in the real estate investment game.
Every investment is unique and the risks associated with each property you purchase will be more or less risky than the previous one, but may present a higher profit return with more or less equity at risk. Be courageous. Risk is necessary for your personal growth and the growth of your wallet. Always evaluate the risks involved with any transaction first. How much can you lose on the investment and can you handle the loss, psychologically and financially. You must also know what the upside is before you buy.
The indirect cost of not taking risks is future security. For, there is no security in poverty or mediocrity. And there is no security in any action or non-action you take. Don’t let fear hold you back; take advantage of the opportunities presented to you today, for they may not be there tomorrow. Poker great Doyle Brunson said: “Feed your courage and your fears will starve to death.” We couldn’t agree more.
5. Managing Assets Consistently. When you are in a position to buy two or more properties in a short period of time and each property is in need of renovation before it can be rented or sold, evaluate the properties and budget your funds and your time equally among the properties. There would be only a few occasions, outside of adequate funding, that you wouldn’t begin renovating the properties around the same time. Don’t make the mistake of buying properties and have them sitting around for months before you begin work. Your carrying costs will soon eat away at your bankroll, this is the money you’ll need for renovation. Your time will be limited, so make sure you have honest and capable contractors. You could use one general contractor to manage construction crews at each property.
When you begin on the acquisition trail, manage your rentals consistently. When it comes to managing rentals, many investors neglect less valuable and troublesome properties and spend more time with properties that are closer to where they live and have better tenants--that is the wrong approach, and it should be the exact opposite. You should spend more time at your troubled properties and get them up to par or simply put them up for sale and exchange them for better and more profitable investments.
If you would like to know more about successful real estate investing for the long-term get your copy of High Engagement Landlording: The book that broke the mold on proactive investing. Now available on Amazon.