7 Ways to Be a Mediocre Real Estate Investorby
Do you like wasting time?
When I go to a bad movie, I genuinely wish there was a refund for my time spent. Even though the price of a movie ticket is insanely high these days – forget the money – give me my two hours back!
Time management and “lacking time” are the two hot topics amongst people seeking real estate coaching, so why are so many investors working so hard, spending so much time and investing tons of money being mediocre?
Usually it’s because you’re not sure what to do. In fact, you might be here wondering how to get started, or what you should do next to grow your portfolio.
If you can’t tell what’s working and what’s not or you feel a bit like you’re stumbling around in the dark then this is for you. If you are often left thinking something *might* be a good deal, but you’re not sure, or every city seems like a better place to invest than where you’re looking then you might be doing one of these things that is making you mediocre. It can feel like a big, never-ending guessing game.
7 Things Real Estate Investors Do that Make them Mediocre
1. Squirrel Chasing
Our dogs Bram & Maya will be happily focused on a nice relaxing walk until a squirrel appears in a tree. Sometimes there doesn’t even need to be a squirrel … just the thought that MAYBE there is a squirrel can distract them completely.
This is often the case with real estate investors. We have a client who was well on his way to doing a buy and hold real estate deal in a carefully selected neighbourhood of Calgary. Suddenly, he feels the market is too hot and has decided he’s going to flip houses in Edmonton or do rent to owns in Edmonton.
There is ALWAYS something that seems more interesting/easier/more profitable than what you’re working on right now, but if you always quit before you finish then you’re never going to get anywhere. My dogs never catch a squirrel because they never focus on any one creature for very long. If one of them sat patiently under a tree and waiting for it to eventually come down … well I really don’t want to think about it … but they would get what they are chasing.
2. Buying Property Because It’s “Cheap”
We had coaching clients who were at a real estate seminar where houses in Detroit were being sold. Because the houses were under $10,000 people were running to the back of the room to buy a house on their credit card. Likely they were buying houses that were scheduled to be bulldozed, down but I’ll never know. That’s an extreme example but people do something similar all over Canada when they scoop up properties in rougher areas just because they are so much less than an average house in the city.
Who is going to want to live in that house? What other costs will you incur buying a cheap house in a tough neighbourhood?
It’s only a good investment if there is a very high probability you’ll get your money back with a return. Buying in bad neighbourhoods means you’re going to have a very hard time finding good quality tenants. You’ll experience a lot more hassles, which will cost you a lot more time and money.
It might be the right way for you to invest if your personality and skills are a fit for managing these kinds of properties … but for most folks interested in making money through real estate, buying these kind of properties is a quick way for you to start hating real estate (want to really understand why – check out my book which I originally thought of calling ‘Manslaughter and a Crackhouse‘ as a tribute to our very own ‘cheap’ properties).
3. Only Shopping for Deals Online
It happens all the time … I get an email from someone who says “I can’t find ANYTHING that will cashflow in my area.” When I investigate I find out that two hours have been spent searching on MLS. Usually for good measure the person says “I even looked in other cities!”
There are deals online. About 65% of the deals we have done have been listed properties which were on MLS. The problem is that you wouldn’t know they were a deal based solely on their MLS listing in most cases. What makes a great opportunity is so much more than the house price and the limited details that you can find online.
First, the neighbourhood presents an opportunity (we focus on buying properties with a CAUSE) because it’s well positioned for gentrification, a price increase, development or some other positive influence. This is not easy to understand unless you’ve worked that city to find the pockets with potential first. Second, the layout or potential uses of a home present an opportunity. You usually have to get off your butt and look inside the homes to see this. We can eliminate houses based on their MLS listing information because we know we don’t want to buy houses with certain configurations (2 bedrooms up and 2 bedrooms down for example does not work well with our desired tenant profile) but we can’t spot a deal until we see it. Third, the situation of the seller can create a problem you can solve in exchange for a great deal. This is also something you won’t learn from the listing. If anything, great pains are made to hide divorce, layoffs, moves and other factors that can create a great deal for you so you need to be snooping around the area, talking with neighbours, looking at houses to find out this information.
When you’re a focused area expert you’ll spot deals so easily it’s like a neon sign is on top of the house but if you’re just sitting at home looking online it might seem like there is nothing out there!
4. Focusing Only on the Numbers of a Deal
Of course, the reverse can be true too. People think something is a deal based on what they see online but when you get to the neighbourhood you’ll see part of the yard is crumbling into the ravine or the neighbours behind the house have more cars than a used car lot in their yard. Suddenly something that seemed like a good deal is a problem property! A mistake like this is easily made by focusing on the numbers of a deal.
Way back in our third Rev N You Newsletter ever (released in July 2006) Dave shared this little bit of wisdom about buying properties based solely on the numbers:
After a weekend at a real estate investing course that I paid dearly to attend, I was newly equipped with the mission to find properties with a Gross Rent Multiplier of 7 or less. It took me some searching but I found one with a GRM of 3.47! What a great find, or so I thought.
* Asking price = $150,000
* Monthly rent = $3,600
* $150,000/($3,600 x 12) = 3.47.
What a pleasant surprise when the Vendor was also willing to hold a second position on the property. So, not only was I able to secure the low GRM property, but I was also able to get a vendor take back loan.
The trick was that this property was run down, had problem tenants, and always needed a lot of work. Do you remember the crack house story I shared a few months ago that put me in court and cost me nearly $25,000 in court ordered work and fines? If you do, then you know about my GRM property of 3.47. To be fair though, it is possible to do well with a property like this. To do so, however, you have to live close to it, have thick skin, and be available 24/7 to maintain it. Or, have a phenomenal property manager that does not cost you an arm and a leg!
That was an extreme example, but the deals we’ve done with good numbers where we focus on whether we can solve a problem to get a good deal, properties that will attract our ideal tenant, and quality of area and construction, we have made a lot more money over the long term than we have when the initial buy numbers were strong. I’m certainly not suggesting you buy properties that will not cash flow from day one, but I am saying that good numbers do not mean a good deal.
5. Choosing Team Members for the Wrong Reasons
“I just don’t want to be disloyal to him” my client was saying. She had been working with the realtor who had helped her buy her house many years prior, but she was finding that he was just not the right person to help her with her investment deals. He wasn’t listening to her criteria, he didn’t understand what an investor looks for, and he was not helping her uncover the problems that could help her create a deal. She was so frustrated because she was missing deals and struggling to move forward with him on her team.
Feeling loyal to someone who is not the right fit for your team is not the only thing that will hold you back. Working with someone because they are a relative or because you want to help them out is also a down fall of many investors.
If your team is not full of people who are responsive experts, then you’re not going to be highly successful. It’s just not possible.
For most of the people on your team you want to find people who are also real estate investors, who specialize in helping real estate investors and who understand what you are trying to achieve. If you are in a smaller market and can’t find someone that specializes in real estate investments then you can potentially work with someone from a different market (our accountant, lawyer and mortgage broker are all in a different city than where we invest). We build relationships with lenders and our real estate agent locally but work with the specialists even if they are out of town. It’s more important to have an expert than to have someone local for most roles on your team (obviously I am not speaking about plumbers or real estate agents!).
6. Not Investing in Training & Coaching
After our bad experience in 2002 investing $20,000 in real estate investing training that taught us to buy high risk properties, charged us to set up two a tiered corporation (that we couldn’t even use for our deals at the time!), and even taught us some things that were illegal to do in Canada, we were pretty gun shy about more coaching and training.
We carried on buying property and fixing our messes as best we could, but we weren’t becoming experts very quickly. Our list of what not to do, however, was getting pretty long. About eight years into our careers as real estate investors, it was my parents that pushed us to get coaching. They signed me up for a Business Mentor and brought Dave and I to a huge conference in Calgary. Those were game changing moments for us. Suddenly, we realized there was a lot to learn and gain from training and coaching. We also realized that the crappy course we’d spent so much money on in 2002 was nothing like some of the high quality training available in the market. We started investing heavily in ourselves. Every year since 2009 we have spent at least $20,000 a year on coaching, training and education. There’s no other investment we’ve made that has returned us as much money, quality contacts (And friends!), and mental strength as having mentors, attending conferences and constantly learning has given us.
You likely can eventually figure everything out on your own but it will take at least twice as long and probably cost you at least double in terms of the size of your mistakes compared to learning from someone who has done what you want to do. You can get through tough times and celebrate good times on your own, but it will be so much more fulfilling and so much less painful if you have like minded people to support you along the way. Every once in awhile I meet people who have been lucky with their investments … they bought a few properties and have had few problems and made money. Most people I know, however, who have had success have invested heavily in mentor ship and training.
At a minimum you need a trusted third party who will give you sound advice to spot when you’re self justifying (You did read one member of your power team you must add, right?).
7. Quitting When the Going Gets Tough
There are going to be totally crap days. Most days if you’re following a pretty sound strategy and you’re making good choices, you’ll find that it’s a pretty straightforward business to run. You collect cheques, pay bills and watch your wealth grow. However, there will be days where the banks are being ridiculously difficult or you’ve got a tenant that calls every three days asking for something new to be fixed, added or renovated at their property and it’s driving you absolutely crazy. Every year or two you’ll have something major to deal with like a flooded property or five tenants giving notice in the same month, but if you let those things knock you down you’ll never get great. You will never get to the WHY you’ve worked so hard to create in your life.
In Brendon Burchard’s Millionaire Messenger he shared a fictitious story of a guy digging for gold. He said the guy would dig and dig in one spot for awhile but he wasn’t hitting gold so he would move to another spot and dig for awhile but not hit gold again. He did this many times before he finally quit. If only he knew that several times all he had to do was dig ONE MORE TIME and he would have hit gold he would have kept going, but you don’t know when you’re only one more step away from the gold so you need to keep going!
Real estate investing is not always easy but you can make it a lot simpler by pursuing excellence. The better you become at what you do – the more you know about your strategy, your market and the deals you’re willing to do, the simpler your business will get. And the more focused you become, the more money you will make. Happy investing!