Do You Have the Makeup of a Great Real Estate Investor
Real estate investing takes time, money, resources, and education. Purchasing real estate is often a high-cost endeavor, which automatically makes it more of a commitment than putting some money in an index fund. Before you leap in with both feet into real estate investing, see if you have the makeup of a great real estate investor. If you’re missing some of these, can you work on them to become the real estate investor you want to be? If you’re investing in real estate properly, you can set yourself up for a lifetime of financial gains.
Do You Take Risks?
There’s no way around it – investing in anything is always somewhat of a risk. Putting your money in the hands of the market means ups and downs that are out of your control, and that doesn’t apply only to the stock market. However, the risk in real estate investing is often a bit more concentrated than buying stocks or bonds. In stock investing, funds are often easy to identify by risk level, but real estate doesn’t come with any such guidelines or guarantees. Things like mortgage rates, the cost of property improvements, and buyer preferences are all far more challenging to predict, leading to more complicated assumptions on the part of a buyer.
With the tried and true method of real estate investing, you can’t buy a little bit of a property like you can with other types of investments, so taking the leap means going all in with every purchase. Even something like a single unit in a condo building or a purchase as simple as part of a duplex will likely cost you tens or even hundreds of thousands of dollars, likely putting a large amount of your portfolio at risk in one venture.
Can You Make Decisions Quickly?
Real estate investing often involves making quick choices, occasionally without as much time as you would like to weigh the pros and cons or to do thorough research. The process of purchasing real estate often moves quickly, with desirable properties lasting only days on the market. If you want to compete with your fellow investors and improve your odds of turning a good profit, thinking on your feet is a part of the process.
Due diligence is highly emphasized as a part of the real estate purchase process, but this often means researching opportunities in advance of compelling options hitting the market – not after. When a perfect property for your goals comes onto the market, you need to be ready to use your skills, knowledge, and abilities to act quickly. Time is money, and money today is always more valuable than future money. As such, even the little things like accelerating the remodeling process, choosing a tenant, or even settling on a marketing strategy, are tasks you should take on with haste.
In evaluating your decision-making abilities, it’s also important to analyze your reliance on concepts like sunk cost fallacy. Sunk cost fallacy, or the inclination to continue an investment simply because you have already put in so much time or money, even if it is going poorly, holds back many potentially good investors. If you are more likely to hold onto a bad thing in hopes it will eventually get better rather than pulling the plug and starting over somewhere new, real estate investing may not complement your decision-making style.
Do You Have Goals?
Most people consider real estate investing because they feel as though the gains are larger than putting cash in the stock market. However, to succeed in real estate investing, your primary goal needs to go beyond simply making money. Instead, more specific objectives are imperative to ensuring your overall success.
Before determining even the basics, like whether to focus on fixing and flipping or serving as a landlord, you need to know what you want to achieve. For example, some real estate investors will want access to a steady stream of cash, while others may prefer larger payouts less frequently. In some cases, doing research may be advised before setting goals. Those new to real estate investing may need to learn more about average rates of return, the costs required to start seeing cash flows, or even the kinds of tactics that can improve the odds of success. By better understanding the true potential, it’s easier to set meaningful goals that will inspire sensible and sustainable action.
Without an understanding of the landscape and a realistic idea of what is possible, you may be setting yourself up for failure before you even get started. Believing that higher returns are guaranteed or that flipping will always yield enormous gains can leave investors taking unnecessary risks or investing too much, too soon.
Being realistic about the feasibility of your goals and using the know-how necessary to create a plan to reach them is a key part of the makeup of a real estate investor. Those who want more than is possible likely won’t be happy with what real estate investing entails.
Can You Handle Pressure?
There is a lot of pressure involved in investing in real estate. The pressure to move quickly, to commit a large amount of money to a project that may or may not result in an adequate ROI, and even the pressure to find an appropriate buyer without wasting time can lead to a lot of stress – stress beyond the levels that everyone can sustain for long.
The pressure required to keep everything moving forward isn’t for everyone. With so many little details involved in the process, maintaining a positive ROI means balancing a lot of plates, and keeping things like contractor timelines, DIY projects, materials investments, and even mortgage payments can be more than most people are used to handling.
When staying cool under pressure isn’t one of your strengths, the likelihood of making a mistake or letting things fall through the cracks is high. While some trial and error is natural in all areas of real estate investment, too much error and not enough trial can result in potential loss of profits. While decision-making is absolutely a key part of success in real estate, decisions made under pressure rather than from an educated perspective can create a spiral of potential problems.
Are You Organized?
Organization is a major part of many career paths and investment objectives, but effective real estate investing requires a certain level of organization that goes above and beyond.
The little details that go into things like managing a property, overseeing the renovation efforts to prepare a property for sale, or even keeping track of tenant applications for your rental require constant vigilance. Even the smallest details matter when profit is on the line; things like failing to answer tenant complaints in a reasonable amount of time, choosing a convenient yet more expensive plumber because you forgot to do your homework, or missing the damaged roof during your property inspection can add up, creating expenses that will stand in the way of your target ROI. While some of the incremental expenses that occur during fixing and flipping or preparing for a tenant can’t be avoided, ones that are related to a failure in organization can be.
Organization in real estate investing goes beyond the details related to your specific projects as well. In addition to your own endeavors, you need to understand the market as a whole, both on a local and national scale. If you miss a major event in your area or trends in your neighborhood due to a lack of organization with your research, you may end up costing yourself more than you think.
Are You Smart With Money?
A basic understanding of core financial concepts is a key part of success in any investment strategy, and real estate investing is not an exception – in fact, it may be even more crucial in this arena where the stakes are much higher. A risky purchase without considering things like closing costs or interest rates can create a much more unstable financial position, increasing the likelihood of a seemingly-good investment turning into a poor one.
Before deciding that real estate investing is the right choice, be sure your financial knowledge is up to par. Things like how to create projections for renovation costs, maintaining ROI models, bookkeeping, and even calculating depreciation and amortization can be extremely valuable skills for those involved in real estate, providing resources that can help determine the feasibility of an investment and how to best ensure profits. When these details are ignored or, potentially worse, misunderstood, that lack of knowledge can be extremely damaging. An affinity for spreadsheets and a know-how regarding financial statements and bookkeeping software can also be a plus.
And with many loan programs to help you be smarter with your money, we can help you make the right decision.
Do You Have a Positive Viewpoint?
Real estate investing isn’t easy. While the process of choosing property, making an offer, and getting started on flipping or preparing for a renter certainly comes with a rush of excitement, much of the process can be stressful and pressure-packed. For those who don’t have a good attitude about the ups and downs that come with renovations and preparation, it can be hard to stay focused on the end goal.
While a healthy amount of doubt and skepticism can be a benefit in a variety of investing activities, a negative attitude can be a detriment to real estate investing. Taking a negative viewpoint on things like the outcome of a bid, the abilities of contractors, or the likelihood of finding the right tenant will hurt your outlook and, consequently, the amount of effort you contribute to the process. When you’re convinced you’ll fail, you’re more likely to see that as the end result, compromising the time and effort you’ve invested into your purchases.
No matter how many struggles you encounter in your real estate investments – and even if you lose money – it’s important to stay positive. By telling yourself that every experience is a lesson that will help you in a future, you’ll learn the tips and tricks necessary to manage stress and make quick and savvy decisions for the benefit of your ROI. When you see failure as inevitable, you won’t be able to learn what you need to make investing work for you.
Real estate investing can be an extremely beneficial endeavor, from the opportunity to rehabilitate a property to turn a profit to the chance to secure a steady rental income stream. However, it takes the right kind of person to see success in real estate endeavors. Those with the makeup of a real estate investor – those who can tolerate risk, manage pressure, stay organized, oversee financial details, and keep a positive outlook through it all – may be the right fit for professional investment. From fix and flips to rental properties, there are plenty of ways to customize how you can grow your portfolio – and your profits. From this list, do you see areas where you can improve and become a better real estate investor? If so, you may just set yourself up for strong profits and ROI.
Scott Clift is a licensed real estate broker with Westpark Loans. He has been in the real estate industry since 1994. His team of seasoned professionals specialize in providing real estate loans for investors and other self-employed individuals. When you are ready to invest in real estate, call Westpark Loans to secure your financing at (844) 574-LOAN or by visiting westparkloans.com.