Successfully investing in real estate is difficult enough in today’s competitive market. With deals becoming more and more complex, one mistake can end up costing new real estate investors a lot of money.That’s why it makes sense for new real estate investors to learn from the mistakes that experienced investors made when they were first starting out. You’ll save a lot of time, frustration, and money.
Today we’d like to share with you an interview we recently conducted with a well-known, ultra-successful real estate investor. Because our investor is a bit publicity shy, we’ll just call him ‘Don’ for short.
Lesson #1: Know where you’re going before you start
Stessa: Don, thanks for taking the time out of your busy schedule to meet with us today. The first question we wanted to ask you is, ‘What’s the #1 thing that new real estate investor should know?’
Don: You’re very welcome, and I think it’s an absolutely amazing opportunity to speak directly to the new real estate investors who are reading this.
If I had to name the #1 most important lesson that new real estate investors should know, it’s to have a clear strategy. Know where you want to go and how you’re going to get there – before you spend a single penny on real estate.
That’s because there are so many different factors and variables in real estate investing. It’s much too easy to get sidetracked if you haven’t done your market research and formulated your own personal real estate investment strategy. For example, there are four major real estate asset classes: residential, commercial, land, and special use. Then there are three main real estate investment strategies: core, value-add, and opportunistic. One investor might find that opportunistic fixing-and-flipping houses works for them, while another discovers that longer-term, core buy-and-hold investments are more to her liking.
New real estate investors should pick a strategy – decide what works best for them and their personal investment situation and goals – and then stick to it, fine-tuning their real estate investment strategy along the way.
Lesson #2: Use today’s digital tools to do the heavy lifting
Stessa: Real estate investing can be complex. It’s a lot of hard work, almost too much for one person to do by themselves. What are your thoughts on how to organize yourself in today’s investing world?
Don: Always remember that hard work—when done smartly—pays off. Let me answer the first part of your question first. Unlike when I got started in the business, new real estate investors have the advantage of using today’s amazing digital tools to do a lot of work over the web. Some of the top digital tools for real estate investors include researching market data and finding property to buy on sites such as Zillow and Rent Cafe.
Once a property is purchased software such as SmartMove for screening tenants and a cloud-based real estate software system like Stessa make it easy for real estate investors to track and manage the performance of their real estate investment portfolio as it grows.
Social media marketing for real estate is also a wonderful tool to promote and market yourself and your business as a thought leader in your market and chosen investment niche. Popular sites include Facebook for business, LinkedIn, YouTube, and Twitter – which I’m especially fond of.
Lesson #3: You’re only as good as your team
Don: Now on to the second part of your question, and that’s the importance of people.You know, Roger Staubach from the Dallas Cowboys—who by the way went on to start his own very successful commercial real estate business from scratch and then sold it to Jones Lang LaSalle for $613 million—once said, “In any team sport, the best teams have consistency and chemistry”.
And let me tell you, a successful real estate investor is only as good as his or her team. I know for a fact that new real estate investors aren’t crazy about having a team. I wasn’t to be perfectly honest, and one of my biggest pain points was taking the time to find the right team members in the beginning.
It’s not easy, but all new real estate investors should start building their team with the right people beginning with the very first property they buy. When I say, ‘right people’, what I mean is team members who are focused on investment real estate.
The main reason I suggest starting immediately with this is because you’ll have a lot of at-bats, and many many strikeouts. And that’s OK! Some team members may not work out, others may not be as proactive as you need. Either way, start building and refining your team early on, because the sooner you perfect that chemistry, the sooner you’ll start hitting those home runs.
For example, choose a real estate agent who is focused on investment property vs. your regular mom-and-pop-let’s-buy-a-home type of agent. Your lawyer should specialize in real estate law and contract law, and your accountant should understand all of the tax advantages – such as 1031 tax-deferred exchanges – that investment real estate offers.
Lesson #4: Always have a Plan B
Stessa: Great advice on saving time with digital real estate tools and team building Don, thank you. It sounds like those—in addition to new real estate investors having the right strategy—will keep their business running smoothly and profitably.
Don: Generally speaking, yes. But – and I can’t stress this enough – don’t bite off more than you can chew and always have a contingency plan. Because just like in life, or in politics for that matter, things in the investment real estate business sometimes don’t always go according to plan.
New real estate investors are sometimes overly optimistic about their abilities. It’s important to be prepared for unforeseen property repairs, tenants that disappear in the middle of the night, or an overly zealous zoning inspector. Remember that in the investment real estate business cash is king, so it’s critical to use online real estate management software to budget realistically and accurately and to have reserves for when the unexpected happens—because it can, and it will.
Lesson #5: Organized real estate investors are always winners
Don: In the end, the bottom line is that organization will make or break a new real estate investor. New real estate investors who are organized will always come out as winners. By organization I mean consolidating as much as possible so that it’s all in the same place and can be accessed anywhere and anytime. Market research data, property reports, closing statements and tenant leases can all easily be stored in the cloud.
Online financial real estate management tools are used by organized investors to accurately calculate and forecast income, expenses, and net cash flow. Solid organization helps generate strong ROIs, while disorganized investors quickly find themselves losing money. It’s also much easier to attract outside investors if you can show to them you’re organized and efficient. Trust me, this will be a gamechanger!
Learning from the mistakes of experienced real estate investors makes good business sense
Stessa: Don, thank you again for taking the time to talk with us today. New real estate investors certainly can jump-start their business by learning from the mistakes that experienced investors made.
Don: You’re very welcome, and I sincerely hope that your readers have amazing success with their real estate businesses. If I may, let me take just a moment and re-cap some of the most important points we discussed.
It’s critical for new real estate investors to have a strategic plan – understand the market, pick a real estate niche to invest in that matches their investment style and personality, and become the go-to expert in the market. Leverage modern digital tools such as LinkedIn for marketing, Zillow for market analysis and finding deals, and Stessa for managing investment real estate portfolios.
Remember that you’re only as good as your team, so start looking for team members that will add value to your business even before you do your first deal. Make sure to budget accurately and keep money in reserve, and delegate whenever you can to free up time for networking and deal-making that will keep your real estate investment business profitable and growing.
Real estate investors know that using leverage and other people’s money makes good financial sense. New real estate investors can leverage and learn from mistakes that experienced real estate investors have already made. That’s good business, and good business sense!
