Successful real estate investors possess a unique combination of knowledge, networking and organizational skills, perseverance and talent. They understand how to overcome challenges and can spot a great deal. They are educated about the real estate markets that have gained their interest. They understand the risks and the rewards, and they know how to minimize the former to maximize the latter.
Here are seven habits of successful real estate investors, including tried-and-true methods, lessons and best practices, that can help lock in profits and avoid mistakes.
1. Develop a Plan
Establishing a clear set of short and long-term goals is a must for anyone who is serious about investing in real estate. Before you start to seriously look at properties, you should have a clear idea of what you want to accomplish as a real estate investor. Ask yourself where you want to end up, and – perhaps most importantly – why. For example, are you looking for ongoing passive income, do you want to have a second home to enjoy with friends and family, or are you ready to actively manage a larger portfolio of multiple properties? Consider developing a business plan to help maintain focus and visualize the bigger picture. A solid plan can keep you on track and should include things like:
- Cost of Purchase / How Much Can You Invest?
- Number of Units & Type of Properties Owned
- Estimated Annual Rental Income / Total Return (ROI) Required
- Ongoing Maintenance & Property Management Costs
- Length of Investment
- Anticipated Demographic & Market Changes
- Risk Tolerance
2. Understand the Market
All real estate markets are definitely not created equal, so be sure you take the time to get very familiar with whatever market(s) you are investing in. Whether that happens to be your favorite vacation destination or your home town, buying a second home or investment property is different than selecting a primary residence, so familiarize yourself with the ins and outs of each specific real estate market before you buy. Once you have narrowed in on a particular geographic region and type of property, stay abreast of developing area market trends, including significant changes in consumer spending habits, unemployment numbers and how other comparable properties are faring. Conducting due diligence will allow you to predict when current trends might change and also position you to take advantage of new investment opportunities whenever they arise.
3. Build a Trusted Team
Today’s most successful real estate investors also “know what they don’t know,” as the old saying goes, and will work to build a team of trusted professionals according to their own personal strengths and weaknesses. In other words, don’t be afraid to enlist the expertise of others to compensate in areas where you might be lacking! This includes working with a knowledgeable realtor who has already established plenty of connections in your real estate market of choice, as well as an experienced attorney, accountant, bookkeeper, contractor and possibly a property manager.
4. Work On the Business, Not In It
If you haven’t caught on yet, it’s essential to view real estate investing as a business! After you’ve developed a strategic plan, settled on a specific market, selected a type of investment property and put together a dream team of professionals to help ensure your success, it’s time to actually work the plan. Your job as a real estate investor is to manage assets and carry out smart growth strategies that will directly benefit the bottom line of your business. This can be next to impossible if you’re too busy sifting through thousands of potential properties, micromanaging properties, doing small maintenance jobs every day, or wading through legal documents and accounting chores that are best left to the pros. Instead, stay in your lane and farm out small jobs and other tasks so you can stay focused on the big picture!
5. Keep Networking
Regardless of where you are right now on the path to buying a new investment property, never underestimate the value of expanding your network! Networking ensures success and allows you to keep expanding your horizons. Mastering the art of networking will help you discover exciting new real estate markets, learn from other successful real estate investors, find reliable contractors and service providers, locate new investment opportunities, uncover deals that are not available to the public and – perhaps most importantly – continue learning!
6. Buy on Facts, Not Emotion
Although human attributes like intuition and feelings can be invaluable at times, they really have no place in real estate investing. Even if the property you’re buying will function as a second home – like an income-producing vacation rental – you should approach each potential new real estate investment with a critical eye and avoid getting caught up in your emotions. Run the numbers, bring in the experts and know the market!
7. Make Money on the Buy
The idea here is to look for properties that you could theoretically sell immediately for a profit, thereby making money on the day of closing… On paper anyway. This smart investment strategy protects you from forces outside of your control, such as the economy, setting you up to more easily create added value through smart property management practices, appropriate upgrades and a solid operations plan. Your realtor should compile a nice variety of potential properties to help you locate a solid investment and he or she should also be skilled at negotiating a decent deal so you don’t overpay.
Real estate offers a way for investors to offset stock market volatility and protect hard-earned assets. Implement these habits and tips to increase productivity and achieve your goals!
Do you have additional questions about real estate investing? Ask us in the comments!