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
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 very risky to pay over market value for a property in the hopes that the rent will go up, the area will improve, and/or the property’s value will increase. The simple formula for long term success in real estate is to buy a desirable property below market value, in an area with a lot of 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
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 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 – 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 Property Management company you want to hire isn’t interested in managing 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.
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