I even remember as I grew up and was doing car repair on a 50 year old truck I was trying to renovate; I was trying to remove the brake drum.
This part was rusted into place and it was not budging. I was pulling and pulling with no luck. My father walked in, saw me struggling and grabbed a scrap of wood, placed it on the drum and proceed to hit it with one solid whack of the hammer.
I was stunned, how stupid, I thought, I am trying to pull this off and he is hitting it inward with a hammer. To my surprise after doing this he pulled it right off. (I will never forget my surprise when he succeeded with such ease on something I struggled with so much. It was then I was convinced you can learn a lot from people who have done things before as they have learned the tricks of the trade.
To that point, now that I have aged, I too, have discovered many tips. Many that can make investing much easier. I see many investors work so hard to produce such little results.
Like me spending almost an hour, getting frustrated pulling on a brake drum with no results that my father spent seconds to remove. His seconds reaped more results than my hour. So in the spirit of making investing more productive with less work I share these tips with you.
22 investing tips (in no particular order)
1. Treat investing like a business:
My hobby of renovating an old truck caused me to spend an hour on something my dad spends seconds to do. For him it was a task in hand and his goal was to accomplish the removal of the brake drum and move on. Same for succeeding in real estate investing. Treat it like a business with focus on the job at hand and you will be far more productive.
2. Create your investment plan:
Going hand in hand with treating it like a business you want to have a plan. I am surprised at how many people have a plan of just buying property that makes sense in hopes of making a lot of money. How many properties do you want to own, what types of properties do you want to own, how will you finance them, how long will you hold them, where will you buy them, what will your exit strategies be. There are many things you should have identified. You want to begin as you plan to proceed. If you do not know what that looks like you are already stalled out.
3. Find great finance sources:
You will always need access to funds, when you find a great lender you want to create loyalty so they continue to work hard for you. You also want to keep your eyes open for different lenders with different programs. The more you are aware of financing programs the more you will spot creative buying opportunities.
4. Find best locations to invest:
Now more than ever real estate is about location. Where is the best location to accomplish your investment objectives? You can buy property in any city U.S.A so why not invest in the location that reaps the best sustainable returns
5. Understand tax benefits:
Making great cash flow or reaping huge appreciation means very little if Uncle Sam takes it all at the end of the year. Real estate has some of the best tax advantages available to anyone. Study up on these tax benefits and you will increase your net profits that may prove to be your best ROI available.
6. Think outside the box:
Best properties are not advertised. There are better results available than looking in the paper or shopping the MLS system. These typical advertising forums are where retail sellers are promoting their properties. You want to be searching for non-listed properties. Watch for bandit signs (like the ones you see on the street corner) and network with other investors.
7. Network and get involved:
Real estate is a people business. As an investor you want to stay up on the latest trends and expose yourself to great deals and that is through connections and knowing people in the investing world. Knowing people that can share opportunities, knowledge and sources are invaluable resources.
8. The Kaizen way:
This one lends itself to new investors more so. The Kaizen Way for those who struggle not knowing what to do or how to get started. The Kaizen way is a Japanese way of doing small bite size tasks and keep inching your way forward. I see many new investors spend years and never make a purchase because they are still trying to figure things out. Do something every day to move you forward.
9. Don’t be discouraged by a no, never give up:
Buying a property means you do your diligence and make offers based on the numbers. If you do not get accepted offers just move on and keep making offers. You will eventually identify a conversion ratio. Not all deals will get accepted. Just keep going.
10. Be a problem solver:
Too often I see buyers and investors think about just themselves and their goals. Remember this is a people business. If you are getting a lot of rejected offers perhaps you have not identified what the sellers goals are. To make a deal you have to create a win win situation. Find out where the sellers pains are and craft an offer that will accomplish their goal as well. It is often not just about the price it is often a deeper issue perhaps a timeframe they need to sell within or their inability to do repairs to the property. Be a problem solver and you will close more deals.
11. Keep learning and stay informed:
Staying educated often leads to lack of focus because you will be exposed to so much. This is why having a plan is so important; do not get caught in the syndrome of chasing the next shiny object. Staying educated should be focused on creating more knowledge and wisdom that benefits your investment plan.
12. Build your power team:
Any seasoned investor will tell you to build your team. Your lender, your realtor, your attorney, your accountant, your tradespeople all make up your Power Team. Share your investment plan with them and they will become your best advocates. They will work to assist in accomplishing a successful outcome for you. They will also bring you more deals because they will think of you when an opportunity arises because they want you to succeed and quite honestly it will bring more work for them as well. it is the quintessential win win.
13. Brand yourself:
This is so important and so easy. Have a plan, do as you say, let everyone on your Power Team know what you believe in and repeat. You are branding your investment style and people will identify with you. If you are a wholesaler, for example, you want to do great rehab and people will know to trust you. On the other hand if you do quick fixes with low quality you have negatively branded yourself.
14. Find a mentor:
Every successful person has a mentor. Sports players have coaches, business professional have coaches even coaches have their coaches. A mentor will keep you focused and keep you motivated.
15. Know your credit:
Interesting enough, the more property you buy the easier it becomes to find lenders. Lenders like when you have assets, so the more assets you have the better. As investors we tend to use lots of credit so staying on top of your credit score and the accuracy of it is very important. A negative mark on your score can escalate out of control if not monitored. If you get a blemish correct it right away. Keeping your score high gets you best interest rates which keeps your overall cash flow up. Don’t let little blemishes result in thousands of dollars of higher rates over time.
16. Do your diligence:
I see people spend more time doing diligence on a vacation they are about to take than they spend on making major investment purchases. Know what you are buying, what the location is all about and the economic fundamentals of the real estate market. With real estate being mostly about location, you certainly want to know about the market you are investing in. this is where the sustainability of the investment comes from.
17. Learn how to read pro-formas:
There are 5 potential streams of income that comes from real estate investing. This is all laid out in a quality real estate pro-forma. Most seller’s use an abbreviated version of a pro-forma and it is designed to make their investments look better. Often they omit important line item expenses like repair, vacancies, management fees etc. always run pro-formas on your own pro-forma calculator and always sue the same one on all investments to make sure you are comparing apples to apples.
18. Cash flow is job one:
Personally I invest primarily for the equity growth (appreciation) this is where wealth is created. However job one is the cash flow. The property must generate positive cash flow. Many investors before the bubble were investing knowing they were buying properties that do not cash flow with the anticipation of property values rising quickly. This sounds great, but does not give them any room for sudden market shifts. You want to make sure the property always cash flows in the event you have to hold the property in your portfolio for a length of time.
19. Invest with the 1% rule:
The rule of thumb is you want to receive at least 1% of the purchase price per month as a gross rent. (A $100,000 property should rent for $1,000 Per month) You obviously want to run deeper diligence but a quick synopsis to determine if a property has merit is this 1% rule.
20. Know the market conditions:
There is an expression that it is lonely at the top. The metaphor of course is that while a majority of the people are following what everyone else is doing the successful people do their own thing. In buy and hold real estate that means investing in markets that are poised and positioned for sustainable returns and equity growth. Do not be one of the many who invest in sellers markets because you see so many people making money and you want in. Often people finally get in when they should be getting out.
21. Buy and Hold:
Buy and hold real estate suggest that properties value will double every seven years or so. However like everything, real estate values too are cyclical.. Buying and hold does not necessarily mean buy property and hold that property for ever. You can buy, hold until the market conditions change to a seller’s’ market then reposition those assets to the next emerging market. Ride the up wave and then reposition so you are always riding up waves.
Master what works for you, execute your investment plan and repeat. Never give up. Life (and investing) is a journey not a destination.