Having worked with investors from all walks of life I see many different investment personalities. I see quick decision makers who are great at making quick concise decisions, but often are lacking in details. I see detail oriented people who are so into details that they never make a decision since they are always researching and by the time they are ready to invest they missed the best opportunities.
I work with many new or “wanna be” investors whose motto is they just want to make lots of money in real estate. They have no real plan and are open to any investment that makes sense. The irony is if they do not have a plan how do you know if an investment makes sense?
The serious investor always knows exactly what they want, how they are going to get it, where they are going to get it and because they are so purposeful they have a great understanding of how that investment will perform for them.
Serious and “wanna be” investor similarities
Both investors want to invest in real estate. Some are simply interested in properties and others believe and understand it is one of the strongest investment classes available to them today.
Often they share the desire to leverage an investment and for the most part only real estate offers the ability to finance your investment.
Both investors believe they are able make a fortune in real estate. Yes, even the hobbyist investor believes this.
The differences set in
Focus, or lack thereof, is the biggest thing that separates these two investors. The serious investor has a clearly defined plan as to what they will buy, where they want to buy, and precisely why they have chosen the criteria they did to execute their investments.
The hobbyist investor spends the majority of their time chasing the newest shiny object. They read or hear about this investment opportunity and look into it, they start to believe this is their best investment opportunity and just before they pull the trigger and invest they are distracted by, “Oh wait, what is that over there, perhaps I should look into that further.”
I know this sounds silly, but I see this happen every day. Often people are so busy chasing the next shiny object that they never make an investment at all. After looking into so many different things, they start seeing less attractive deals and soon realize they missed the best opportunities. (Does any of this sound familiar?)
9 or more things the serious investor does (How many can you relate with)
- Goals and planning: The most serious investors have a written plan. They know what their end game is and plan a strategy to obtain it. It is more about building an investment portfolio than just purchasing a single investment property.
- Entity structure set up: Liability protections as well as tax planning strategies are important to the serious investor as they are building a portfolio not just making a onetime investment.
- Focus; Seasoned and serious investors always have the entire picture in mind. Just like a radar machine scanning back and forth taking in all the data, or perhaps a quarterback looking to pass the ball and identifying all the players, weighing out their risks and rewards, looking at the anticipated outcome of their next action and then making a decision and executing that decision with confidence and without wavering from it.
- Begin as they plan to proceed: Having a clear and concise plan for a long term investment portfolio building expedition versus simply a plan to buy an investment property and then wonder about what the next investment will look like. This investor already knows what he wants his/her entire portfolio to look like and begins as they plan to proceed because they took the time to do investment planning.
- Strategize: Each property purchase is an important piece to the entire investment portfolio. It fits into the criteria of their portfolio. For example, I have been working with a gentleman who desires to acquire 10 properties per year. His first two properties must be high cash flow properties. The strategy is to build up quick cash to build reserve funds for security. Then to acquire 2 strong equity building properties to build up equity. As time progresses, he can pull some of this equity for future investment leverage, and the cash flow to his portfolio remains strong with a balance of cash flow and equity.
- Invest in investor advantage markets: It is interesting that everyone knows the most important attribute to real estate is Location. I have never found anyone who did not know this simple rule of thumb and yet only seasoned investors seem to embrace this. Finding the best emerging market is the key to having a long term sustainable investment.
- Investing within the path of progress: The words Location, Location, Location is repeated as if it is more of a bullseye than a general rule of thumb. Best locations for an investor are best market, path of progress and of course investing in the locations that represent the sweet spot.
- The use of safe leverage: Leverage is a great tool as long as you use it wisely. Many people love to invest in real estate because of the ability to use leverage. Serious investors protect their investments with safe leverage that maintains a safe equity position for them to account for unforeseen market shifts. Many investors, (present company included) have at one point in their career over leveraged their investments and were forced to sell their high leveraged properties to maintain their portfolio. This is an easy trap to fall into when things are going smoothly. Maintaining a 6 month reserve to cover your entire portfolio should be paramount.
- Leverage their accomplishments: Similar to leveraging a property by financing part of it, is the ability to leverage an asset that you already own. Lenders feel more comfortable working with people who have proven they have the ability to acquire and manage their assets, The more property you own and control, the easier it is to get financing as long as that financing is safe with proper reserves (for each property) built up. Each property you own becomes leverage just like a building block to a strong foundation.
- Execute their exit strategies: The expression “you make your money going in” means to have a goal, a reason for buying a particular property knowing how you will sell it some day for a profit. As a fix and flip investor plans to sell for quick profit, a buy and hold investor will plan to make great cash flow on the property during the hold and to sell to a retail buyer when the market suggests it is time to sell and enjoy years worth of equity buildup. All too often new investors will buy with one exit strategy in mind and decide to switch exit mid-stream, their lack of focus prevents them from ever making serious money.
- Repeat: Life is not a destination it is a journey. I have not yet found anyone who wants to buy a set amount of properties for a set number of years and then simply quit. As you perfect the investment model that you have built, and as you have bought a property, profited from it and then executed a profitable exit strategy, you of course want to repeat and do it all over again. Hey, why quit when you have built a passive income generating machine?
I have the privilege of being outside the box looking in on many investors portfolios. It is easy to see how different serious investors perform. I trust you have also been able to identify a difference. So how did you score, how many of these serious investor activities do you do on a regular basis?
What do you do that I may have not mentioned? We always like to hear from our readers.
Happy investing my friends!