Sometimes a search through your bookshelf is like a treasure hunt. As I plucked Stephen Covey's 1989 Seven Habits of Highly Effective People from my shelf, I believe I found some long lost gold. Flipping through the yellowed pages, I soaked in some of the long forgotten golden nuggets the book contains, and I pondered what the seven habits of a highly effective real estate investor would be.
I believe that none of the habits of a successful real estate investor are particularly extraordinary. In other words - anyone could be a highly effective real estate investor if they wanted to be. Of course, this is only my opinion, and the topic has not been subject to scientific study. But here's what I believe the seven habits would be:
Habit One: Know Your Goals
Most of the real estate investors I know set out with a goal. Someone I know started off simply by selling his home to buy two lots side by side and built an 8 unit townhouse complex. He has turned that project into a company that sells and builds hundreds of homes in Toronto every year. Some goals are simple, but lead to big things. Other goals are big and have to be broken down into simpler shorter term goals.
Habit Two: Make Your Money when you Buy
It's not a good plan to pay above current market value for a property with the expectation that the rent you will be able to charge will increase, the neighborhood will become more desirable, and/or the value of the property will go up. The tried and true principle for success in real estate investing is to buy a decent property below market value in a neighborhood that has potential for future growth.
Habit Three: Hire Help
Unless you want to take on a few extra jobs when you buy a property, I suggest that you think about hiring a property manager, an accountant and a real estate agent. The property manager can do repairs to the property and collect rent. The accountant can do your bookkeeping and yearly taxes, and the real estate agent can work with you to find more real estate investment properties. Just make sure that the people that you hire are trustworthy and will help you achieve your goals.
Habit Four: Use Just the Right Amount of Leverage
Leverage is a word you hear very often in real estate investing. Simply put, it's when you put less money down on a house then the house is worth. For example, if there is a $100,000 house you want to buy, you can put in $10,000. If that house then makes $5,000 a year, you have recouped half of your initial investment. But if you put $100,000 down on that same house, then you've still only recouped 5%. The bad news about leverage is the amount of risk involved. That $100,000 house could drop and only be worth $90,000 or $80,000. Then you would be in the position of owing more on the house than it's worth.
Habit Five: Find Good Partners
I love the success stories where someone with nothing but big dreams and a lot of initiative ties up one or more properties with contracts. They had little to no money, so while they had the properties under contract, they went out and found people who did. If you aren't starting out with a big bucket of cash, it's tough to make millions in real estate if you aren't willing to partner with others. Your partner might be a family member, a friend, a colleague, a company or even someone you haven't met yet. We are millionaires from our real estate investing thanks to a couple of great partners that contributed equity to our investments along the way. We would likely only half of what we own now without them.
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 are not able or not willing to get involved with a deal,
- The banks - on just about every deal we had trouble getting financing and had to deal with multiple lending issues,
- Family- we've asked numerous family members to become our investment partners and are more often than not turned down. But it never hurts to ask, as family members will give better interest rates than the banks,
- Insurance companies - if you don't live in the same province as the property you are trying to insure, most insurance companies don't want to do business with you. We have approached and been turned down by numerous insurance companies that won't insure our Ontario properties because we live in British Columbia,
- Property Managers - sometimes the Property Management company you want to hire isn't interested in managing your property.
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.
I believe that none of the habits of a successful real estate investor are particularly extraordinary. In other words - anyone could be a highly effective real estate investor if they wanted to be. Of course, this is only my opinion, and the topic has not been subject to scientific study. But here's what I believe the seven habits would be:
Habit One: Know Your Goals
Most of the real estate investors I know set out with a goal. Someone I know started off simply by selling his home to buy two lots side by side and built an 8 unit townhouse complex. He has turned that project into a company that sells and builds hundreds of homes in Toronto every year. Some goals are simple, but lead to big things. Other goals are big and have to be broken down into simpler shorter term goals.
Habit Two: Make Your Money when you Buy
It's not a good plan to pay above current market value for a property with the expectation that the rent you will be able to charge will increase, the neighborhood will become more desirable, and/or the value of the property will go up. The tried and true principle for success in real estate investing is to buy a decent property below market value in a neighborhood that has potential for future growth.
Habit Three: Hire Help
Unless you want to take on a few extra jobs when you buy a property, I suggest that you think about hiring a property manager, an accountant and a real estate agent. The property manager can do repairs to the property and collect rent. The accountant can do your bookkeeping and yearly taxes, and the real estate agent can work with you to find more real estate investment properties. Just make sure that the people that you hire are trustworthy and will help you achieve your goals.
Habit Four: Use Just the Right Amount of Leverage
Leverage is a word you hear very often in real estate investing. Simply put, it's when you put less money down on a house then the house is worth. For example, if there is a $100,000 house you want to buy, you can put in $10,000. If that house then makes $5,000 a year, you have recouped half of your initial investment. But if you put $100,000 down on that same house, then you've still only recouped 5%. The bad news about leverage is the amount of risk involved. That $100,000 house could drop and only be worth $90,000 or $80,000. Then you would be in the position of owing more on the house than it's worth.
Habit Five: Find Good Partners
I love the success stories where someone with nothing but big dreams and a lot of initiative ties up one or more properties with contracts. They had little to no money, so while they had the properties under contract, they went out and found people who did. If you aren't starting out with a big bucket of cash, it's tough to make millions in real estate if you aren't willing to partner with others. Your partner might be a family member, a friend, a colleague, a company or even someone you haven't met yet. We are millionaires from our real estate investing thanks to a couple of great partners that contributed equity to our investments along the way. We would likely only half of what we own now without them.
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 are not able or not willing to get involved with a deal,
- The banks - on just about every deal we had trouble getting financing and had to deal with multiple lending issues,
- Family- we've asked numerous family members to become our investment partners and are more often than not turned down. But it never hurts to ask, as family members will give better interest rates than the banks,
- Insurance companies - if you don't live in the same province as the property you are trying to insure, most insurance companies don't want to do business with you. We have approached and been turned down by numerous insurance companies that won't insure our Ontario properties because we live in British Columbia,
- Property Managers - sometimes the Property Management company you want to hire isn't interested in managing your property.
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 rich 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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