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What Makes a Successful Real Estate Investor?
The book titled Seven Habits of Highly Effective People, written by Stephen Covey, was first published in1989. I found my old copy of the book the other day, and as I flipped through the pages I started wondering what the seven habits of highly effective real estate investors 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 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
Serious real estate investors use leverage to get what they want. If you keep buying property with cash every single time, even the richest person in the world will soon run out of money. Leverage is when you invest a small amount on a much bigger amount. In other words, it's possible to put $10,000 down on $100,000 house. If that house makes $5,000 a year, then you ROI ( return on investment) would be 50%. If you had paid for the whole $100,000 up front, then the return would still only be 5%. However, the downside of putting a small amount down is that it does not protect you from fluctuations in the market. If that same house drops to $90,000, you can wind up owing more on that home than the property is 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
When starting out in real estate (or even when you're established) you're going to hear the word "no" a lot, so make sure you don't stray from your goals. Some of the people you could hear "no" from are as follows:
- Potential partners not wanting to get involved in a deal we've invited them into,
- The banks - we've had issues getting financing for almost every property deal we've been involved with,
- 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 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.
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 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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