Remember that book by Stephen Covey that was printed in 1989, Seven Habits of Highly Effective People? In it's day it was a best seller, and even now it's still great advice. I found my old copy on my shelf the other day and I started to wonder... what would the seven habits of a successful real estate investor be?
After some thought, I realized that a successful real estate investor is not a special breed; I personally believe that anyone could become one if they really wanted to. However, they would need to practice these seven habits:
Habit One: Know Your Goals
The majority of the real estate investors I know set out with a goal in mind. I know a man that started investing by selling his house to buy two lots, on which he built a townhouse complex that had 8 units. Since then, he has started his own company and is building and selling hundreds of homes in Toronto every year. So, in this case, it shows how some goals may be simple, but can lead to much bigger things. Or, if goals are large they should be broken down into numerous shorter term goals.
Habit Two: Make Your Money when you Buy
You should never pay over market value for a property just because you think that the area will improve in the future, thereby increasing the value of your property and allowing you to charge higher rent. The best formula for success in the long run when it comes to real estate investing is to purchase a property below market value in an area that has loads of potential for future growth.
Habit Three: Hire Help
Unless you plan to handle everything involved with the ongoing maintenance of a property, you should plan to hire a property manager. You may also want to hire an accountant to do the bookkeeping and the taxes related to your real estate investments. Additionally, a real estate agent is also someone you will want to find to help you in your ongoing quest to find properties to purchase. It shouldn't be hard to find one that will understand your goals and will work with you to achieve them.
Habit Four: Use Just the Right Amount of Leverage
Every single money-making real estate investor that I have met has made money in real estate, in a big part, due to the ability to use leverage. Even the richest people will eventually run out of cash if they keep buying property. Leverage allows you to use a small portion of your own money to buy a property. The less money you put in, the higher your potential return on investment. In really simple terms, if you put in $10,000 on a $100,000 property and earn $5,000 in a year, your return on investment is 50%. If you had paid cash for that $100,000 property your return would still only be 5% ($5,000). Too much leverage equates to too much risk though, so find a balance. If you buy a $100,000 property and only put in $2,000 of your own money and the market value of that property drops to $90,000 you now owe more on that property than it's worth.
Habit Five: Find Good Partners
My husband and I are millionaires thanks to our real estate investing, and we owe a large part of that success to the investment partners that contributed equity to our investments over the years. If we hadn't had those partnerships, we would likely own only half of the properties that we currently own today. It's hard to reach your financial goals if you aren't willing to enter into partnerships with others- and partnering with other investors is essential if you are starting out in the world of real estate investing without a lot of money of your own. Family members, friends, or colleagues could be potential partners.
Habit Six: Be Persistent
The other characteristic of every real estate investor I have ever met is that they never ever give up. You will hear "No" a lot. Get ready to face the objections and find creative solutions. In our experience we've been turned down by:
- Potential partners that do not want to partner with you on a deal,
- Banks- banks can be very picky when it comes to lending money. This means you might have trouble with financing and other lending issues,
- Family - parents are the most likely place to start. You may often be turned down, but when they do say yes, interest rates will probably be pretty low,
- Insurance companies - if you are an out of province landlord, most insurance companies don't want to deal with you. This has been an issue for us in the past, as we own some properties in Ontario but live in British Columbia,
- Property Managers - sometimes the company you want to hire doesn't want to manage the property you own.
And even though we have been turned down by all of the above at one time or another, we keep pushing ahead to reach our goals.
Habit Seven: Research - Always be learning
- The best investors are the ones that ask a lot of questions, keep their eyes open for new opportunities and do a lot of research. Many get right into the details of a city. They go to the municipal offices and pull the official plan. They get zoning details and applications. They talk to the city councilors about plans, they attend city council meetings and know everything that is happening in an area.
Not every good investor I know possesses every one of these habits. And I know there are habits that many good investors have that I haven't covered. But as I thought about the most effective and successful investors that I have met or read about, I realized that almost all of them did possess each of the above habits. And, that anyone could really do what they did if they set out to establish these habits and practices in their real estate investing.
After some thought, I realized that a successful real estate investor is not a special breed; I personally believe that anyone could become one if they really wanted to. However, they would need to practice these seven habits:
Habit One: Know Your Goals
The majority of the real estate investors I know set out with a goal in mind. I know a man that started investing by selling his house to buy two lots, on which he built a townhouse complex that had 8 units. Since then, he has started his own company and is building and selling hundreds of homes in Toronto every year. So, in this case, it shows how some goals may be simple, but can lead to much bigger things. Or, if goals are large they should be broken down into numerous shorter term goals.
Habit Two: Make Your Money when you Buy
You should never pay over market value for a property just because you think that the area will improve in the future, thereby increasing the value of your property and allowing you to charge higher rent. The best formula for success in the long run when it comes to real estate investing is to purchase a property below market value in an area that has loads of potential for future growth.
Habit Three: Hire Help
Unless you plan to handle everything involved with the ongoing maintenance of a property, you should plan to hire a property manager. You may also want to hire an accountant to do the bookkeeping and the taxes related to your real estate investments. Additionally, a real estate agent is also someone you will want to find to help you in your ongoing quest to find properties to purchase. It shouldn't be hard to find one that will understand your goals and will work with you to achieve them.
Habit Four: Use Just the Right Amount of Leverage
Every single money-making real estate investor that I have met has made money in real estate, in a big part, due to the ability to use leverage. Even the richest people will eventually run out of cash if they keep buying property. Leverage allows you to use a small portion of your own money to buy a property. The less money you put in, the higher your potential return on investment. In really simple terms, if you put in $10,000 on a $100,000 property and earn $5,000 in a year, your return on investment is 50%. If you had paid cash for that $100,000 property your return would still only be 5% ($5,000). Too much leverage equates to too much risk though, so find a balance. If you buy a $100,000 property and only put in $2,000 of your own money and the market value of that property drops to $90,000 you now owe more on that property than it's worth.
Habit Five: Find Good Partners
My husband and I are millionaires thanks to our real estate investing, and we owe a large part of that success to the investment partners that contributed equity to our investments over the years. If we hadn't had those partnerships, we would likely own only half of the properties that we currently own today. It's hard to reach your financial goals if you aren't willing to enter into partnerships with others- and partnering with other investors is essential if you are starting out in the world of real estate investing without a lot of money of your own. Family members, friends, or colleagues could be potential partners.
Habit Six: Be Persistent
The other characteristic of every real estate investor I have ever met is that they never ever give up. You will hear "No" a lot. Get ready to face the objections and find creative solutions. In our experience we've been turned down by:
- Potential partners that do not want to partner with you on a deal,
- Banks- banks can be very picky when it comes to lending money. This means you might have trouble with financing and other lending issues,
- Family - parents are the most likely place to start. You may often be turned down, but when they do say yes, interest rates will probably be pretty low,
- Insurance companies - if you are an out of province landlord, most insurance companies don't want to deal with you. This has been an issue for us in the past, as we own some properties in Ontario but live in British Columbia,
- Property Managers - sometimes the company you want to hire doesn't want to manage the property you own.
And even though we have been turned down by all of the above at one time or another, we keep pushing ahead to reach our goals.
Habit Seven: Research - Always be learning
- The best investors are the ones that ask a lot of questions, keep their eyes open for new opportunities and do a lot of research. Many get right into the details of a city. They go to the municipal offices and pull the official plan. They get zoning details and applications. They talk to the city councilors about plans, they attend city council meetings and know everything that is happening in an area.
Not every good investor I know possesses every one of these habits. And I know there are habits that many good investors have that I haven't covered. But as I thought about the most effective and successful investors that I have met or read about, I realized that almost all of them did possess each of the above habits. And, that anyone could really do what they did if they set out to establish these habits and practices in their real estate investing.
About the Author:
Learn How to Retire a wealthy real estate investor with Julie's free Real Estate Investing Starter Tips Guide. Learn how to create financial freedom, positive cashflow and massive wealth with tips like: How to find quality rental properties, finding and keeping great tenants, and easy ways to make rental property recordkeeping simple and more profitable.
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