What Are 8 Habits Of A Successful Real Estate Investor?
Over the years I’ve have worked with many successful investors and have personally experienced and thought a lot about what it takes to be a successful real estate investor. I’ve also explored and experienced a wide variety of systems and approaches to investing and have found that successful real estate investing takes preparation and ongoing commitment – you have to work at it. You can’t be a completely passive investor, and by that I mean even if you have others taking care of all your day to day management of the properties, successful real estate investing still requires planning, prep work and execution. All this has led me to develop eight tried and true habits needed by every successful real estate investor.
1. Treat your investing as you would a business:
- Be clear about your real estate investing vision and ultimate goal; take the time to think and plan – just as you would for a business. As a real estate investor, you must know why you’re investing and what you want to achieve. Whether your goal is a certain amount of monthly cash flow; an increase to your net worth; ownership of a certain number of buildings, or something else, you won’t achieve it if you don’t have a clearly defined goal.
- Develop a comprehensive 3 to 5 year plan – this is your blueprint for your real estate investing and it needs to incorporate your overall vision for your investing, your desired end goal and interim goals.
- Break your multi-year plan into annual and quarterly goals or other manageable chunks of time: this better enables you to achieve them, track them and adjust them accordingly.
- Monitoring your progress will help you stay on track with your plan, however it’s also useful when something unexpected comes up and you need to adjust your goals. For example, you may be planning to sell in a particular market at a specific time, but when that time arrives the conditions are not right to sell and achieve your target profit; if you have your plan in place you’ll be better able to deal with this unexpected eventuality and continue within the context of your multi-year plan.
- Plan for performance: Reverse engineer your plan from your ultimate goal – work backwards from this goal and end date (the date by which you wish to achieve your goal) and break down the steps you need to take into actionable items on a monthly, weekly and even daily basis.
- Do your research and be realistic – there are so many opportunities for investment and it definitely isn’t “one size fits all”. Taking the time to do some research on particular regions, markets, and types of properties, lets you be realistic and tune in to opportunities that are achievable and fit with your real estate investing plan style and objectives.
- SWOT analysis: Strength/Weakness/Opportunity/Threat analyses are used by businesses to take a close look at their current and potential markets, their human resources/team members, their business goals, and what are the potential obstacles to reaching those goals etc. as well as determine their readiness to move into new areas of business and such. As a real estate investor, you too can use this analysis tool to take a closer look at your investment goals, your multi-year plan, the markets/regions where you’re thinking of investing, your own skill set and those of your real estate investing team, and so on. It also allows you to gain awareness of areas where you will need to bolster your potential weaknesses and/or address threats and build in contingencies. This flexible analysis tool will help you make comprehensive decisions to move forward with your plan with greater success.
- Understand your markets: Another critical area of research has to do with real estate markets. Quite literally, you must understand a market to be successful when you invest in it. Just because someone says a particular type of property or area is a hot market doesn’t necessarily mean it’s a wise or strong investment for you. That’s why you’ve taken the time to develop your multi-year plan and why you don’t just “pinball” from one “latest trend/must do deal” to another.
- Prioritize – First Things First – part of having a multi-year plan is setting priorities. It’s hardly ever possible to achieve all your goals right off the bat, so it’s important to determine what should be done first.
- Prioritization refers to dealing with the steps/actions in your plan in an appropriate order that will help you achieve the greatest success. Typically there are some keystone actions that will have the greatest and most beneficial impact compared to other actions you might take to achieve your overall goal; these keystone actions would be a great place to start.
- It is also applicable to the types of investing you might be considering – as a new investor you might consider a single investment opportunity in a well-managed condominium, as a more seasoned investor you might consider more complex investments.
- Another important habit to develop is to recognize that you will be far more effective in achieving your goals by setting priorities and sticking to them than if you just deal with what comes your way. Sometimes it helps to break down a priority into baby action steps.
- Allow for contingencies – Even with a strong, well-thought out plan and a business-like approach to your investing, surprises still happen. Including contingencies in your multi-year plan will allow you to competently handle the unexpected: whether your property faces a natural disaster, your personal circumstances change suddenly, or something unforeseen happens like the closing of a major employer in a small town. Just as for a business, your contingencies may include a certain amount of funds set aside and/or specific plans to implement in a crisis or disaster.
2. Develop your niche:
There are many ways to invest in real estate, so it’s important to identify the type of investment that will work well for you and thereby focus your efforts on those specific investments. By focusing on a particular type of real estate investment you’ll also develop a depth of knowledge, comfort and expertise in that niche.
- Delegate your weaknesses – just as it is best to play to your strengths, it’s also wise to be aware of your weaknesses or the gaps in your knowledge, experience, and/or skills. We can’t be experts in everything so having a good team that complements your expertise will help you feel in the gaps in your knowledge. This is particularly useful when you’ve mastered a niche and are ready to move on to new opportunities.
- Play to your strengths – experienced, successful investors know that playing to their strong suit is a good way to go. If you’re familiar with a certain region or type of property, then use that knowledge as a strength. Whether you invest in residential or commercial properties, single family homes, or multiple-unit properties, starting from a place of strength will help you to build on that knowledge and develop sound expertise in that niche.
3. Keep educating yourself:
Being a life-long learner is not only good for your health and your soul, it can also be good for your investment portfolio. Exploring new types of investment, investigating new regions and markets, considering different types of properties and even learning a new skill will benefit you as an investor.
- Go to courses – we all learn in different ways and some of us learn well in a formal structured setting like a course or seminar. A structured course is often a great way to learn about and understand the fundamentals.
- Get a mentor – learning from an expert who has already gone down the path you are taking is invaluable.
- Read books, explore websites and blogs – informal self-learning is something everyone can do at any time.
- Sharpen the saw and be prepared to learn. This will mean different things for different people, but at the heart of it, this is about self-improvement or growth. You need to be intellectually, emotionally and physically able to learn about any new thing in order to be able to understand and utilize the new knowledge – this is called sharpening the saw.
- Ask questions – a life-long learner rarely shies away from asking questions in order to explore and understand a new area of knowledge.
- Listen to others that have qualified opinions – part of having an effective learning network is to make connections with mentors and thought-leaders. With TED Talks on-line, social media, webinars and other e-learning opportunities, it is easier than ever to hear directly from informed, well-qualified people who know about real estate investing (and other areas that may be of interest to you.)
4. Create a helpful network:
- Connecting with like-minded people provides the opportunity to share experiences and be supportive of each other. A network enables you as an investor to challenge and support other investors.
- Surrounding yourself with people that may be more successful/advanced than you is a great way to expand your knowledge and/or move into a new niche. It also forces you to stretch or rise to the occasion rather than remaining comfortable and doing what you already know you can.
- Developing strong referrals is another natural outcome of having a vibrant and helpful network. This is a two-way street so it’s important to receive and to give referrals.
5. Capitalize on a strong supportive team:
- Ask for assistance from your team – it’s impossible to know everything or to have the depth of detailed knowledge required for the many aspects of locating, purchasing, maintaining and selling investment properties. Having an experienced, reliable team of professionals with specialized knowledge enables you to “quarterback” your real estate investing. As mentioned earlier, your team should complement your strengths and you must be able to delegate to your team with confidence.
- Have good, reliable, experienced members on your team, such as a real estate accountant, lawyer, realtor(s), property manager(s), mortgage broker, and renovations/repair team, etc. They should be familiar with the type of real estate investing you’re focused on, and if not, they should refer you to colleagues who can do so.
6. Be ethical:
The world is a small place these days, so it’s wise to act in a responsible, moral and ethical manner at all times. There really isn’t any such thing as a fast buck with no consequences. Treating others with respect and as you would wish to be treated is key to building productive working relationships. If you develop a reputation for questionable investing behaviour, this will isolate you from legitimate investors and lenders.
- Know the big why
- Why are you even investing – being aware of your goal and vision enables you to be clear about why you’re investing in real estate and what you’re trying to achieve. In turn, this provides you with a touchstone, so you can ensure the decisions you’re making fit with your big why.
- Think of it this way, if you were financially secure then what would you do? What is your passion? Is it family, travel, giving back, etc.? Real estate investing is a means to an end. If you were already wealthy would you still to continue to invest in real estate and if so why? If you’re in this situation it may be that you’ll get other forms of satisfaction from real estate investing such as the pleasure of providing homes to families, the thrill of being involved in a development from the ground up, or the search for the “right” investment property.
- Find the Win/Win – as a real estate investor you can create income for lenders, folks in construction, and people who work in the myriad companies and organizations that support real estate and properties. Creating win/win deals is not only good business in real estate it can be a very satisfying end in and of itself.
- As an investor you may also find yourself in a position to improve the life of a tenant or help reinvigorate a neighbourhood or save a heritage home.
- Being service-oriented can make for very good business. Effective real estate investors provide good “customer service” by paying attention to details, listening to and acting upon complaints and concerns, and conducting themselves in a positive, professional manner.
- Develop the habit of looking at the ethics of a deal or opportunity and remember to look at the other side of the deal – from the perspective of current or future tenants, lenders, etc.
7. Understand your risks:
- Identify and understand your risks and then mitigate them as much as possible – working with an experienced and reliable team of professionals is a great way to identify, understand and mitigate or reduce such risks.
- Ensure your assets are protected – while you can’t mitigate every risk, you can be wise and sensitive in your approach. Some ways to protect your assets include: carrying appropriate insurance, setting up a protective legal structure for your investment plan and your properties, having and implementing a preventative maintenance plan for your investment property, and even educating yourself about the particular type of investment you’ve made.
8. Be a proactive action taker:
It can be hard to move from the learning, planning, thinking phase to the doing phase, but developing this habit in my opinion is one of the most important to actually achieving your investments and the results you want.
- Write out your real estate investing goals and review them frequently; yes this is related to habit number one.
- Determine your obstacles – these are usually different from risks. An obstacle can be the practical challenge of a lack of funding, or the need to address the economic needs of your family before you’re able to divert funds to investing (e.g. dealing with the costs of education for yourself and/or your children). Just as with risks, understanding your obstacles may help you mitigate them or it may help you prioritize the steps of your multi-year plan.
- Develop worst case scenarios – imagining such scenarios and planning for them by developing a response plan can be very useful. It may be something very practical like imagining what to do if the fire prevention sprinkler system in your investment property leaks. Thinking about this scenario, doing some research and putting together a plan will let you respond effectively and speedily should the situation ever arise.
- Overcome your fears/Act in spite of fear – fear of failure can affect all of us, but if you want to achieve your investment goals and realize your financial dreams you have overcome your fears and get on with making an investment. Starting small or breaking things down into doable pieces of a multi-year plan may help you act and make your investment.
- Be a problem-solver – looking at a problem situation, understanding it, examining the possibilities and then acting upon the opportunities, these are all traits of a successful real estate investor.
- Never give up – it’s hard to be successful the first time you try something, but like most things the more you try it, the better you’ll get.
- Look for deals every day – successful real estate investors are always open to the possibilities around them every day. Which brings me back to habit number one: treat your investing as you would a business. Having a business-like approach, putting in the effort, creating a plan, setting up performance expectations, monitoring your progress and making adjustments as needed are habits that will stand you in good stead as a business person and as a real estate investor.
- Take the shot – We can’t always wait to get our ducks in a row, having them in the same pond sometimes has to be good enough. Nothing in life is perfectly aligned all the time and as such, time – the one commodity we can’t replace, is ticking away. Find and write the deals, not every one will go through, but some will and that’s success.
Successful real estate investors put time and effort into their investing. They take a business-like approach and put in the prep work, planning and execution required in order to achieve their goal. They are not passive investors – they are active and engaged in order to get their investing business working for them. By following the eight habits I’ve provided, you too can develop the traits of successful real estate investors, accomplish your investment plan and realize your ultimate goal.