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
The first thing that most of the real estate investors that I know start out with is a goal. One of the investors I know in Toronto sold his home and bought two lots side by side on which he built a townhouse complex that had 8 units. Successfully completing that project gave him the start he needed, and now he has a company that sells and builds hundreds of homes every year. As with anything in life, goals that you set can be simple but may lead to big things; whereas larger goals may have to be broken down into simpler shorter term goals.
Habit Two: Make Your Money when you Buy
It’s not a good plan to pay above current market value for a property with the expectation that the rent you will be able to charge will increase, the neighborhood will become more desirable, and/or the value of the property will go up. The tried and true principle for success in real estate investing is to buy a decent property below market value in a neighborhood that has potential for future growth.
Habit Three: Hire Help
Unless you want to take on a few extra jobs when you buy a property, I suggest that you think about hiring a property manager, an accountant and a real estate agent. The property manager can do repairs to the property and collect rent. The accountant can do your bookkeeping and yearly taxes, and the real estate agent can work with you to find more real estate investment properties. Just make sure that the people that you hire are trustworthy and will help you achieve your goals.
Habit Four: Use Just the Right Amount of Leverage
Every single money-making real estate investor that I have met has made money in real estate, in a big part, due to the ability to use leverage. Even the richest people will eventually run out of cash if they keep buying property. Leverage allows you to use a small portion of your own money to buy a property. The less money you put in, the higher your potential return on investment. In really simple terms, if you put in $10,000 on a $100,000 property and earn $5,000 in a year, your return on investment is 50%. If you had paid cash for that $100,000 property your return would still only be 5% ($5,000). Too much leverage equates to too much risk though, so find a balance. If you buy a $100,000 property and only put in $2,000 of your own money and the market value of that property drops to $90,000 you now owe more on that property than it’s worth.
Habit Five: Find Good Partners
My husband and I are millionaires thanks to our real estate investing, and we owe a large part of that success to the investment partners that contributed equity to our investments over the years. If we hadn’t had those partnerships, we would likely own only half of the properties that we currently own today. It’s hard to reach your financial goals if you aren’t willing to enter into partnerships with others- and partnering with other investors is essential if you are starting out in the world of real estate investing without a lot of money of your own. Family members, friends, or colleagues could be potential partners.
Habit Six: Be Persistent
As a real estate investor you are going to hear “No” many times, so be ready to hear the objections and find alternative solutions. I have personally been told “No” by:
– Potential partners that are not able or not willing to get involved with a deal,
– The banks – on just about every deal we had trouble getting financing and had to deal with multiple lending issues,
– Family- we’ve asked numerous family members to become our investment partners and are more often than not turned down. But it never hurts to ask, as family members will give better interest rates than the banks,
– 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.
And even though we have been turned down by all of the above at one time or another, we keep pushing ahead to reach our goals.
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.
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