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 majority of the real estate investors I know set out with a goal in mind. I know a man that started investing by selling his house to buy two lots, on which he built a townhouse complex that had 8 units. Since then, he has started his own company and is building and selling hundreds of homes in Toronto every year. So, in this case, it shows how some goals may be simple, but can lead to much bigger things. Or, if goals are large they should be broken down into numerous 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
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 – we’ve had issues getting financing for almost every property deal we’ve been involved with,
– 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 – if you don’t live in the same province as the property you are trying to insure, most insurance companies don’t want to do business with you. We have approached and been turned down by numerous insurance companies that won’t insure our Ontario properties because we live in British Columbia,
– Property Management Companies – it’s possible that the property management company that you would like to hire doesn’t want to manage your property.
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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