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?
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
The first thing that most of the real estate investors that I know start out with is a goal. One of the investors I know in Toronto sold his home and bought two lots side by side on which he built a townhouse complex that had 8 units. Successfully completing that project gave him the start he needed, and now he has a company that sells and builds hundreds of homes every year. As with anything in life, goals that you set can be simple but may lead to big things; whereas larger goals may 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
If you are starting out in the world of real estate investing without a lot of money, it's hard to reach your financial goals if you aren't willing to enter into partnerships with others. Your partners could be a family members, friends, colleagues, or even companies. I enjoy hearing success stories where someone with no money of their own enters into a contract on a property, but know they can make it happen by partnering up with another investor. My husband and I are millionaires from our real estate investing, thanks in great part to some of the partners that contributed equity to our investments along the way. Without them, we would likely only own half of the properties that we currently own today.
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,
- The banks - on just about every deal we had trouble getting financing and had to deal with multiple 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 - so few companies want to deal with out of province landlords and it seems like we've been turned down by nearly every company in Ontario where some of our properties are located (we live in British Columbia),
- Property Management Companies - it's possible that the property management company that you would like to hire doesn't want to manage your property.
But even when we've been turned down by all of the above at some point or another, we don't lose sight of our goals and keep pushing forward.
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
The first thing that most of the real estate investors that I know start out with is a goal. One of the investors I know in Toronto sold his home and bought two lots side by side on which he built a townhouse complex that had 8 units. Successfully completing that project gave him the start he needed, and now he has a company that sells and builds hundreds of homes every year. As with anything in life, goals that you set can be simple but may lead to big things; whereas larger goals may 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
If you are starting out in the world of real estate investing without a lot of money, it's hard to reach your financial goals if you aren't willing to enter into partnerships with others. Your partners could be a family members, friends, colleagues, or even companies. I enjoy hearing success stories where someone with no money of their own enters into a contract on a property, but know they can make it happen by partnering up with another investor. My husband and I are millionaires from our real estate investing, thanks in great part to some of the partners that contributed equity to our investments along the way. Without them, we would likely only own half of the properties that we currently own today.
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,
- The banks - on just about every deal we had trouble getting financing and had to deal with multiple 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 - so few companies want to deal with out of province landlords and it seems like we've been turned down by nearly every company in Ontario where some of our properties are located (we live in British Columbia),
- Property Management Companies - it's possible that the property management company that you would like to hire doesn't want to manage your property.
But even when we've been turned down by all of the above at some point or another, we don't lose sight of our goals and keep pushing forward.
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.
