When it comes to real estate investors, you have your leaders and laggards. Some seem to just fly by the seat of their pants and scrape by. Others have built a substantial portfolio of properties and every time they get a hold of a new one, they seem to have the “Midas Touch” and land crazy sweet deals. Does everything really turn to gold when they touch it, or have they been conditioned by years of sound habits and discipline? I think you know the answer…and luck has nothing to do with it!
Study the habits of successful real estate investors. If they can do it, so can you. Here are 5 of our favorites!
1) Running the numbers: Knowing the calculations
Successful real estate investors don’t leave positive cash flow and profits to chance. They use spreadsheets and tools to calculate the type of investments and profits they want. Using “long time perspective” is also a key secret of successful real estate investors. They don’t just focus on the one property they want to purchase, they calculate out a plan for financial freedom and look at the long term benefit of multiple properties and passive income. Some real estate investors will make some quick short term profits through a flip or wholesale deal without running the numbers, however, this makes it very likely that their next deal will be a bad one since they are relying on gut feel and “luck”. Truly successful investors won’t just “wing it”…they will be calculating and analyzing every step along the way.
2) Staying on top of your properties: Keep up with business finances
It’s always important to have a handle on your finances, have a written financial outlook, and the like. Successful investors get into the habit of tracking all of their income and expenses using tools such as Quicken Rental Property Manger.
Taxes are a major part of real estate investing and concepts such as depreciation and 1031 exchanges are among many tax advantages you can employ. Successful real estate investors seek help from an accountant to cut through the never ending tax jungle. Tax laws are constantly changing and can be very complex.
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3) A habit of networking and team building
Real estate investing is certainly not a solo endeavor! Successful real estate investors know this and focus on building their network. They do this by finding business partners to secure large investments, seeking out mentors with experience and connections, and team members such as lawyers, Realtors®, property managers, and home inspectors.
Since investors have finite time like everyone else, they need to build a great team so they can focus on making money from the next deal. If your time is taken up by managing your properties, doing taxes, and fixing toilets at 3am, that’s less time you have to be scouting out new deals and building your business.
4) Buying properties below market value
Successful real estate investors make a habit of buying properties below market value. Investors know money is made on a piece of real estate when you buy and even a 1-2% difference in cap rate could be a difference of tens of thousands of dollars of cash flow. You might feel that a 6% ROI is just fine (vs. an 8% ROI for example), but this small difference compounded could push your retirement dreams out by years, especially when you take multiple properties into account.
Successful fixers and flippers often use the 70% rule, which means you should purchase a property at 70% of ARV (After Repair Value). This rule is what flippers often use as a “yardstick” to estimate the price they need to pay in order to profit on a fix and flip property. Below market purchasing is absolutely critical to flipping a property since repair expenses often exceed budget plans and a decline in the market or misjudgment on the selling price could cost you dearly.
Buy and hold investors have a little more price leeway when it comes to purchasing a property. They certainly should aim to purchase below market, but a 10-20% discount is still likely to yield positive cash flow. Successful investors always aim to have positive cash flow and do not just bank on appreciation. With the buy and hold approach, money is made on the purchase just like home flippers, but cash flow is critical since they plan to hold it for a long period of time.
Negotiation is perhaps the most important factor in getting the deals that help make the numbers work. Check out our other articles to learn more!
- 5 Tried and True Tips for Negotiating Deals
- Tap Into Your Inner Real Estate Negotiator
- How to Make Your Real Estate Offer Stand Out
5) Never stop learning
Successful real estate investors aren’t too arrogant to admit that they don’t know everything. No matter how seasoned or experienced a RE investor is, there is always something new to learn in this business and education is key. The investors who get cocky and think they “know it all” are suddenly sobered when an unexpected issue comes up that they didn’t try to get help with.
There are certainly many more than “5” habits that successful investors hold close to their vest, but these basic principles will help you increase your chances of great success!