Sometimes a search through your bookshelf is like a treasure hunt. As I plucked Stephen Covey's 1989 Seven Habits of Highly Effective People from my shelf, I believe I found some long lost gold. Flipping through the yellowed pages, I soaked in some of the long forgotten golden nuggets the book contains, and I pondered what the seven habits of a highly effective real estate investor would be.
After some thought, I realized that a successful real estate investor is not a special breed; I personally believe that anyone could become one if they really wanted to. However, they would need to practice these seven habits:
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
You should never pay over market value for a property just because you think that the area will improve in the future, thereby increasing the value of your property and allowing you to charge higher rent. The best formula for success in the long run when it comes to real estate investing is to purchase a property below market value in an area that has loads of 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 - on just about every deal we had trouble getting financing and had to deal with multiple lending issues,
- Family - sometimes we try the bank of parents and we almost always get rejected but we still try because the interest rates are so favourable,
- Insurance companies - so few companies want to deal with out of province landlords and it seems like we've been turned down by nearly every company in Ontario where some of our properties are located (we 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. - 23309
After some thought, I realized that a successful real estate investor is not a special breed; I personally believe that anyone could become one if they really wanted to. However, they would need to practice these seven habits:
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
You should never pay over market value for a property just because you think that the area will improve in the future, thereby increasing the value of your property and allowing you to charge higher rent. The best formula for success in the long run when it comes to real estate investing is to purchase a property below market value in an area that has loads of 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 - on just about every deal we had trouble getting financing and had to deal with multiple lending issues,
- Family - sometimes we try the bank of parents and we almost always get rejected but we still try because the interest rates are so favourable,
- Insurance companies - so few companies want to deal with out of province landlords and it seems like we've been turned down by nearly every company in Ontario where some of our properties are located (we 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. - 23309
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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