Sometimes I am asked by novice property investors what types of advice I’ve received in my investing career. And what was the best advice I ever received – as well as the worst.
The absolute best advice I ever got about property investing:
Roll, baby, roll. Leverage is EVERYTHING in real estate. It is unlike any other investment asset class, in that you can increase your leverage with each new property you acquire. Forget about the bank “owning” the property. They’re simply your “partner.” Lenders are what allow you to grow your business steadily over time…even without the need to put more of your own capital into each new acquisition. If you manage your acquisitions properly, maintain them, improve them, then refinance them, all on a planned, strategic acquisition schedule, you’ll be able to roll your property investments up – that is, increase your leverage with each new property acquired. Ultimately, you can build your own version of a “real estate empire.” Keep things realistic, and you will succeed in property investing. Keep growing your property portfolio with high leverage – always putting down as little of your own funds as possible. That’s the absolute best property investing advice I ever received.
On the south side…
The worst advice I ever got about property investing:
Anyone can do it.
It takes a certain temperament, a certain je ne sais quoi, to be a good property investor. Basic personality qualities include being entrepreneurial, being decisive, and having a proper aptitude (though not genius-level) with math, as well as being meticulous, grounded, and having stick-to-itiveness. These are some of the basic qualities a good property investor will display. Notice I did not include: being good with people, or being a “wheeler-dealer” type. These two traits are not something you need…and they can be learned, as well as delegated to others. That’s what property managers , as well as real estate agents come in and can do for you.
What are the traits that make a good real estate investor?
So be cognizant of what makes you tick – and what your passions are….Active investors in real estate (those that prefer to control their own properties, as opposed to investing in Real Estate Investment Trusts, REITS, for example) don’t get in strictly for monetary rewards alone. There are too many pitfalls to running a successful property investment business to take on the added risks. Rather, hands-on property investors enjoy wearing many different hats: being the site locator, searching for properties, then being good numbers crunchers to see which are the most attractive properties available at any given time.
They then switch hats to become buyers, making offers, negotiating, then finding financing for the properties. Finally, there’s the investor who needs to wear the hat of property manager – acquiring tenants, refurbishing units, and keeping them continually maintained properly. This requires great diligence and attention to detail. You are running an active business, not simply parking your investment dollars in a fund that will (hopefully) offer you positive returns. So heed the worst property investing advice I ever got – that anyone can do it. And make sure you have the right temperament and personality for the job.
photos courtesy of newmusicworld.org, dionisteam.ca, carterrealtyagency.com, sanpedrosquareproperties.com