You’re Not Ready to Invest unless You’re Ready to Gamble
Updated: Dec 29, 2017
As an educator of real estate investing, I am often asked how one can become successful as an investor. The popularity of the profession is likely at an all time high with shows on HGTV and other prime-time networks making it appear to be the simplest and most enjoyable way to acquire wealth, but rarely is there a discussion about the risk. Yes, it is true that you can begin investing with little to no money down. It is also true that there are very high returns for investors, especially for those who invest in areas that are popular places to live and work. I have seen some VEEERRYYY good returns in my business, but it hasn’t always been as prosperous. I have had my share of losses and disappointments which I want to recycle to forewarn you of the risks that come along with investing.
1. Your Reputation is Everything:
Whether communicating with my contractors or with lenders/investors, I offer a very conservative view of the potential of my investment deals. Why? Because I would rather over-deliver than to under-deliver. As a real estate investor, a person is depending on your ability to do what you say you can do. I often find that novice investors will overstate the potential value of properties and novice rehabbers will understate the amount of work needed for the contractor to do, all in an effort to extract profit. However, the best way to extract profit from any business scenario is to lead with integrity. Be ambitious, but also be realistic. The longer you plan to be in this space, the more important your reputation becomes.
2. Get Organized:
As a seasoned investor, I can tell you that deals come at you fast and the best way to take advantage of the opportunity is to have all of your systems in order so that you can quickly capitalize. If you are a wholesaler, have a readily accessible buyers list to shop discounted, off-market deals. When housing deals come your way that you are prepared to shop, have your agreements ready (preferably with electronic signature options) which will allow you to quickly lock down an asset and offer it to your clients. If you are a rehabber, have your tax records & financials readily available to ensure that you can present the best picture to any lender/investor that you’d like to partner with to complete your project. When overseeing your rehabs, maintain a daily budget on a platform that offers you easy access to your numbers in case they change. Proper organization allows you to easily minimize risk and identify what next steps are needed in order for you to profit.
3. Avoid Partnerships with Unseasoned Investors:
The fact is, there are tons of people who will want to do “deals” with you. However, my personal experience has shown me that when a person doesn’t have experience with the ebbs and flows of real estate investing, they may not have the stomach to tolerate the moments of uncertainty. Partnerships in real estate investment deals involve more than money & assets. Knowing that you have unwavering support from your partner, their confidence in your ability to keep the project on track and their willingness to fulfill their obligation to the partnership is key. I definitely recommend clarifying roles with an operating agreement that you both sign so there is a thorough understanding of roles and responsibilities.
There are great upside benefits to being a real estate investor! Before diving into the deep end, make sure that you are aware that the rewards come a lot of risk.