If you had the chance to start over again, knowing what you know now, what would you do differently the second time around? This question cuts to the core of the essential lessons of a lifetime of real estate investing. Here is my six-part answer to this question.
Realize it is never about the property.
One of the biggest misconceptions about real estate investing is that the most critical thing is the property itself--its condition and location. The truth is that these considerations are secondary to the motivation of the seller.
If the seller is NOT motivated, then no matter what the condition or the location of the property you still are not going to get a great deal.
But if you have a motivated seller, then you have a great chance of turning a handsome profit no matter what the condition or location. When this really sinks in, it revolutionizes how you prioritize your search for finding great deals. No longer do you waste time on due diligence and inspecting the house UNTIL you have made sure you've found a motivated sellers.
Finding this motivated seller becomes the most important activity you can ever engage in. This is what you must focus your time, efforts, and creativity on. This also means that the highest leverage activity you have is to be sitting face-to-face with a motivated seller.
Don't allow non-motivated sellers to waste a minute more of your time listing off the wonderful features of their homes. You don't care about the house until you've established the seller is motivated.
Understand if you never ask, you'll never get.
When I got started investing in real estate I was scared to death to actually make offers to sellers. The root was my fear of them rejecting me and my offer. In my mind, the two were one and the same.
Over time I came to realize that this one mistake kept me from making offers that, in retrospect, I feel the sellers would have accepted. This cost me hundreds of thousands of dollars in lost profits.
Today I see other investors falling for this same trap. Sometimes it is the disbelief that a sellers would ever accept a no money down offer. Or walking away with a promise to "get back with them" (rather than making the offer on the spot). The cost is the same.
The most important lesson I learned is that NOT asking is an automatic no, and asking isn't as painful as I'd imagined. Over the years I've asked for and gotten everything from extensions on the term of a seller carry back, to money for a repair, to free appliances.
Always maintain "walk away" power.
The common denominator for all the borderline deals I've bought, flipped, or lease optioned is that at some point in the negotiation, I crossed over to the point where I felt I "had to" do the deal.
If ever you hear yourself saying these words, even if it is merely to yourself, push back you chair, get up from the negotiating table, and walk away.
I'm serious about this. If the deal is that good, a small break while you take a moment by yourself won't stop the deal. And by taking this time you might just keep your ego and your emotions from pushing you to make a deal that means lots of work and risk for little real profit.
I'd put $3,000 into a house to fix it up and then find it needed a $2,000 repair I didn't know about. So I would spend $2,000, so I wouldn't lose the $3,000, only to find out? You get the idea here.
Beware this slippery slope and know when to cut your losses. Remember, good deals are like buses--if you miss one, another one comes along before too long.
Beware of the "rehab" trap.
Have you ever caught the bug? "Fabulous wealth can be yours if you buy junkers and turn them into palaces." There are millions to be made in rehab projects, but before you dive into this type of investing, you need to do some serious soul searching. Rehabs aren't right for everyone.
I've discovered that rehabs aren't for me. In my opinion, they take too much up-front money, too much energy to complete, and too much time to turn them. The first causes too much risk; the second cuts into your efforts to find more deals; and the third eats into your cash flow and turns you into a motivated seller!
I've come up with rule that I follow: If it needs more than minor cosmetic work, flip the deal to another party. I want to make it clear here that this is my personal bias and that many investors love rehabbing properties and are well paid for it. It's is just not for me.
If you are going to rehab make sure you listen to the following rules:
Don't overpay for the property. Build a LARGE profit in by buying right.
Make sure you factor in ALL the real costs, not just the financial costs to rehab a property.
This means you must factor in the TIME cost to do or oversee the project. You must factor in the EMOTIONAL cost of having to do the work, having so much of your money on the line, etc. Finally, factor in the
Reprogram your beliefs about self worth and money.
Collecting money from a buyer can cause you to confront deeply-hidden pitfalls from your past about self-worth and what it means to be wealthy. This might be hard to accept, but in my opinion it's one of the biggest road blocks to making a fortune in real estate. I've gone through this myself.
On one level or another, I didn't feel good enough about myself to think it was okay for me to make that much money with so little effort. My beliefs about money and what it meant to be "rich" made making money a dirty thing for me.
On some of the first properties I sold, I was uncomfortable to even collect an application fee from prospective tenant buyers.
It took years to clear out this garbage and get comfortable with the wealth that flowed into my life. My mentor, Carl Hampton was instrumental. He was a great role model for a down-to-earth, ethical millionaire.
Who do you know that can be this kind of positive role model for yourself? Spend as much time with these people as possible.
Gather as many positive references of people using money for good purposes as possible. This will help you reprogram your beliefs about what you can do when you have money.
Read biographies about billionaire philanthropists like George Soros and Ted Turner who have literally given away BILLIONS of dollars to worthy causes. Tithe 10% (or some percentage) of your profits to groups you want to support. This lesson deserves your attention and honest self-evaluation.
You'll never know it all, but you can learn enough
I was probably just like you when you got started investing. I kept learning more and more, but never felt like I knew enough. Then one day I realized when a person really knows enough?
It's not when you know it all because you'll never it know it all.
It's not when you know all the legal aspects and contract clauses.
You know enough when you step out and take action, acknowledging that you'll never know it all. This leap of faith is the final ingredient of success.
For any questions, please comment below. For investment services, leave a message at 314-246-9484 or you can email at dhibb99@gmail.com
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