June 27th, 2016
How to Overcome the 21 Deadly Sins of Real Estate Investing: Part II
© 2016 by M. Mitch Freeland
In Part I we covered sins 1 to 10. In Part II we cover sins 11 thru 21, and two bonus sins, 22 and 23.
11. Poor Financial Management. The root of this can originate from undercapitalization or complete financial incompetency. Over-spending, under-budgeting, and overestimating cash flow are common occurrences and a recurring occurrence in real estate investing and particularly in fixing and flipping properties. The budget has to be set and proper estimates on fix-ups must be as close to accurate as possible. Through experience, financial planning, and management of project funds positive growth can be realized. But it is also true; some investors will never realize this and will find themselves on the sidelines every few years or so, or even permanently incapacitated during deflating economic times.
12. Poor Labor Management. As in all successful businesses, management must be able to work well with, understand, and effectively manage labor. If you cannot lead or get along with others, you will have a tough time making a success of yourself as a real estate investor or any other business requiring people. It’s okay to have a turnover of 200% to 300% of the people you hire each year until you locate the right people for the job. If your turnover is higher than this, you might be the problem. It’s time for a little self-assessment.
13. Carelessness and Recklessness. Like a compulsive gambler, you may not be able to control yourself. As with any business venture, clear thought and calculated risks are important. But when you start to become reckless with your capital, or careless by not conducting the property due diligence, you are on the road to ruin. You must operate a business like a business—with effective decision making and with consistent work ethics.
14. Lack of Discipline. It takes discipline to create any meaningful degree of success and the lack of discipline will be the downfall of many investors. It takes hard work to build a successful business. Without discipline, you will never achieve much of anything, believe this fact. Learn to do all you can do everyday and become the person of discipline. There is no other way around to succeeding than a well disciplined work ethic.
15. Perfectionism. Too many people believe a perfectionist attitude is necessary to achieve high results. This is false. A realistic attitude is needed. Knowing what is necessary to get the job done is the vital difference in saving time and money in real estate investing. Try being a realist by offering value. Perfectionism is a self-indulgent activity which serves only you, not your customer or buyer.
16. Self-Doubt and Indecision. All successful investors have a high self-image of themselves; thereby, decision making is easy. Those with self-doubt are usually and regularly indecisive. You have to be a good decision maker to be a good investor for the long haul. The more decisions you make, the better you become at it.
17. Lack of Integrity. Without integrity, an investor will always be scratching at the bottom. In the long-run, only the investor with high integrity wins; and the others fade away into the abyss, never to be heard from again.
18. Over Analysis. The smart investor studies the numbers and when they make sense, he makes an offer. Over analyzing properties potential will usually leave the investor behind the eight ball with no investments. A smart investor acts quickly with the information available. Don’t “guesstimate” all the “what ifs,” they typically don’t happen as frequently as some would want you to believe.
19. Complete Lack of Fundamental Analysis. Some people simply neglect the numbers; it’s true. They like it, they buy it, they rehab it, they put it up for sale, and they sell it for a loss or a miniscule profit—not worth the time or effort. They then complain that real estate investing is a tough business with tight margins and large risks. They did very little work in crunching the numbers and working the figures. If you want to succeed in real estate investment, take the time and discipline yourself to work the numbers. Without the right profit margin you’ll be wasting your time with small profits or large losses.
20. Lack of Persistence and Follow-Through. The more persistent you are simply signifies the measure of your belief; that is, how strongly you believe in yourself and what you are doing. If you are not persistent and you do not follow-through with your objectives then you will never accomplish very much in real estate investing or in life. If you have little faith in your own ability to transform your world, then look for another agenda that excites you—that interests you and stop wasting your time and the time of others.
21. Inflexibility and Close-Mindedness. You must be flexible and keep an open mind when investing. Use your peripheral vision and look around you. Learn to be open to new ideas, listen to other investors and be aware. What are other successful investors doing? Where are they buying and why? Don’t blindly follow them, but study their motives. Some ideas might be good ones.
When buying or selling property, whether in a bad or good market, you must be flexible in price and possibly terms to close a transaction. You can not afford to be close-minded and rigid. More money has been lost when investors refuse to work with buyers and sellers. Some of this has to do with stubbornness and pride rather than good sense. Remember, to keep in action you need to be flexible—you need turnover.
22. False Beliefs or an Ill-Conceived Strategic Plan. A positive attitude is great, but with an ill-conceived strategic plan and unrealistic beliefs, you will be on the road to ruin. Before you invest in any property, first write down your plan of action. A strategic plan starts with your goals—that is, it starts with your mission: What do you plan to accomplish?
23. Don’t over-hype yourself over any property. It is an investment—a commodity to be bought and sold (for a meaningful profit). Focus on a real profit margin of about 50 to 60 percent of after fix-up costs. This should be your goal. It is a realistic goal, and one that should be desired. Set your plan in motion with clear and focused thinking.
Now that you know the sins of real estate investing, it’s best to avoid them. Think about this list and read it over regularly; you might just end up doing the right things. Becoming successful in real estate investing is easy once you’ve followed the rules. Many of these rules are dictated by the natural laws of good, honest, business. Living right and abiding by the natural laws of the universe, Bible, and common sense.
If you are interested in learning about the lucrative world of landlording and rental property investing, get a copy of High Engagement Landlording. There are many concepts in this book that are not covered in mainstream real estate books. You might also want to get a copy of How to Rent Your House, Duplex, Triplex and Other Multi-Family Properties. Both of these books are available on Amazon.
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