7 Ways to Be a Mediocre Real Estate Investor

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Do you like wasting time?

Does it make you happy to spend 20, 30 or even 50 hours on something that doesn’t get you close to the results you want to get?

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.

The numbers:

* 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!




4 Mistakes to Avoid as a Real Estate Investor

Rev N You Man

Mistakes to Avoid as a Real Estate InvestorI’ve been investing for 10 years and this strategy has always served me well,” defended long time real estate investor, Alan*. (*name has been changed)

Looking at your portfolio, I can see there is a lot of equity here but you’re feeding these properties over $1,000 a month on the good months,” argued my husband Dave.

Nearing retirement years, and getting a little anxious with his poorly performing portfolio, Alan had hired us to help him. He’d been trying to add to his portfolio and improve his cash flow for two years but wasn’t making any progress.

His investing strategy made him money in the boom years when prices were increasing but now it was just costing him. To continue to succeed, he needs a new plan. One that avoids his past missteps and the missteps too many new investors make when they are just starting out. That’s what I want to help you with today.

Real Estate Investor Mistake #1 – Chasing Deals

Ever seen the movie UP? The cartoon dogs in the movie are on a very serious mission. They are focused and moving quickly towards their goal … until they spot a squirrel!

Suddenly all attention is directed to the squirrel and they are no longer worried about their plan.

This is what seems to happen to a lot of investors. They either don’t have an investment plan to follow so they are always looking for squirrels or they allow themselves to get easily distracted from that plan when a new squirrel appears.

Sticking to a well thought out plan, based on the fundamentals of real estate investment (buying for cash flow in areas with good economic fundamentals), instead of chasing the latest deal destination will help you make more money, put in less effort and minimize the risks in your investments dramatically. 

Real Estate Investor Mistake #2 – Buying a Property for the Wrong Reason

There are three ways to make money from a real estate investment:

  1. The rental income exceeds your expenses and generates positive cash flow for you each month (cash flow)
  2. The tenants will pay down your mortgage (equity growth)
  3. The property is poised to grow in value over time (appreciation).
Ideally you find a property that is highly likely to deliver on all three. Unless you are happy gambling or speculating, or you know how to create value through redevelopment, renovation or repurposing the use of a property, you should never buy ONLY for the third reason.

It’s speculation, not investment and it is a very high risk game.

Focus on finding properties that will generate enough rent to cover the mortgage payments, taxes, insurance, maintenance and management of the property on a monthly basis and ideally, leave a little in the account afterwards.

When you stick to that formula you’ll find that you’re able to weather the ups and downs of the values, and you won’t have to make sure you are making extra money each month to pay for a short fall generated by one or more of your properties.

Real Estate Investor Mistake #3 – Not Weighing the Risks and Rewards

Unless it’s coming out of my mouth I rarely hear anyone talk about return on time or return on risk. I ALWAYS hear people talk about return on investment.

It’s an important number to consider, but it’s actually not the first thought I have when I’m evaluating an investment. Instead, I am asking:
– What is my return on my time?
– Then, what are the returns relative to my risks?

Time is my most precious resource. I can’t create more time. I can create more money. Money for investment is unlimited when you know how to raise it. And making money isn’t that difficult – it’s keeping it that is tricky. That’s why my biggest consideration in a deal is the time I have to invest and the risks I have to take on to get the return.

When we focused only on return on investment we were drawn to deals with a lot of risk and that required a lot of time to manage and maintain. We weren’t weighing the risks against the returns though. The cash flow was gigantic – so the opportunites seemed great.

Unfortunately, deals with big returns tend to eat up a ton of your time and energy as you manage all the risks. And if something goes wrong, pretty soon you’ll find your funds draining too.

Many real estate investors do not think carefully about the risks and rewards before entering a new investment deal and then end up unable (or unwilling!) to grow their portfolio because of a problem property or two.

Real Estate Investor Mistake #4 – Trying to do it alone

There is a temptation as a new real estate investor to pursue the exciting deals. Like a dog distracted by a squirrel, you can end up heading in the totally opposite direction than where you were going when you began. Real estate investing should not be exciting. If it is, you’re probably doing it wrong, or you’re taking huge risks that had better be coming with huge potential rewards.

Personally I would hire a real estate investing coach to help me with this part. Since we’ve started working with the right business coaches for us we work less and earn more. You can save time, stress and money by getting the right experts on your team. But regardless of WHO you work with you should get help with this part. Sit down with your coach, an experienced investor or at least someone who specializes in helping real estate investors finance their deals, to map out your investment master plan. Then, run that plan by your accountant and even your lawyer. Get input from key team members. Then, stick to that plan by focusing on minimizing risk and time investment and maximizing monthly cash flow and future potential.

The boom years of the 2000’s are behind us for now. That’s not to say that there won’t be appreciation to be enjoyed, but the value increases we are likely to see in the coming years are not likely to be large enough to make up for properties that strap you financially by losing money every month or send you off in a different direction than your master plan called for.

If you avoid these four mistakes as you build your portfolio, you’ll move closer to your goals a lot faster and easier too!

Emotions and Real Estate Decisions

made an offer on the house who will water my flowersReal Estate Millionaire students, we’ll call them Sherry and Curtis, are making great progress with the course. When we had a coaching call with them, they were all fired up to turn their home into a rental property and buy a new place with a basement suite. The strategy (turning your home into a rental property when you move to a new place) can often be a very good one.

We were excited for them, but when we spoke to them, we were a little concerned that they were getting too emotional about things. Sherry was afraid of turning her home into a rental property. She had put a lot of time and effort into creating a beautiful and comfortable home over the years and was really worried it would deteriorate without her. Who will water the flowers she asked? Curtis was excited to get into the real estate investing game and couldn’t wait to move into a home with a yard.

They were planning to meet with a realtor the next day to get an idea of what their current home was worth, and then they were going to look at some listed properties in the potential new area on the weekend.

When we hung up the phone with them we sent a follow up email with some pieces of advice … the biggest point from Julie was:

Take a deep breath – I sense a lot of emotions (fear, excitement, nervousness) and that is NOT GOOD. Emotions are bad when it comes to investments. DO NOT LIST YOUR HOUSE IN A PANIC. DO NOT BUY A NEW HOUSE BECAUSE IT LOOKS GOOD. DO NOT DO ANYTHING THIS WEEKEND. Give yourselves time to think in a relaxed state. There is no urgency to your situation and that gives you power (and control). You always want to have power when it comes to real estate.”

That was Friday. Sunday morning we received an email saying “Don’t be mad, but we just put in an offer on a house“.

We are not about to get mad. We want our students to take action – and there is NOTHING WRONG WITH MAKING OFFERS. And, as long as you make them “subject to” an inspection or financing, it gives yourself a way to back out if your research turns up areas of concern. However, when you do make an offer, especially in this buyer’s market, make sure you keep control of the situation.

In our students case, we think they lost control for the following reasons:

  • They’d only looked at a handful of homes in this area (which is pretty light market research),
  • They were still very emotional about everything,
  • The realtor had only given them 4 business days to remove their subject to inspection clause,
  • Closing was only 30 days later (when they’d specficially stated they needed time to sort out whether they were in fact going to turn their home into a rental or sell it),
  • And, the realtor coached them to go in with a strong price to show they were serious. They only offered about 4% less than asking!

The good news was that the realtor had been unable to present the offer to the sellers, so there was still time to change the offer. We suggested that they contact their realtor and find out why, in a buyers market without competing bids on this property, she was pushing them to be so aggressive. And, we also suggested STRONGLY that they change their offer before it was presented so that they had a lot more time to conduct their due dilligence and ensure they were comfortable with their decisions (of buying, of renting or selling their place, etc.).

They ended up pulling their offer … and guess what … 3 weeks later the house is still on the market. If they want to, they can now go back in, more relaxed, offer a lower price, give themselves more time for the details, and get a much better deal. But that is because they’ve now had 3 weeks to slow down, take the emotion out, revisit their goals, and look at more properties. They still like this one … but they know that there are other potential deals out there now too.

The 3 Biggest Lessons to Learn from their experience are:

  1. SHOP AROUND! Be patient as you look for the deal that is right for you. When you find the perfect place – act quickly and decisively, but be sure it’s the right deal. This house may be a great deal but the only way they can know that with certainty is to look at a lot of other houses in that area. This means looking at 20 – 50+ online listings, viewing dozens of houses through open houses or appointments, and becoming an area expert.
  2. Always remember the motivations behind the people you’re working with. NOBODY will love your money as much as you do. Realtors get paid when the deal is done. That doesn’t make them bad people but it does mean that some realtors will push for terms and conditions that get the deal done … not necessarily that get YOU the absolute best deal for you. Great realtors know the market inside and out, understand deal making, and are able to work hard to find you the deals that meet your goals. Not every realtor is created equal. There’s nothing wrong with parting ways with your realtor if it’s not working out – just be honest and up front about it.
  3. You must take fear, excitement and any other emotion out of the equation. If you are emotional then you will not make good decisions. Things can go wrong, and little things probably will go wrong. That is just life …  if you’ve been following our renovation adventures on our blog, we’ve had plenty of little set backs. It’s cost us more money than we expected and added a week to the project but we never once thought “we never should have done this”. Think about what could wrong, and then think about what you would do if that actually happens. Write it down so that you can actually see your fears in front of you. Most of the time the fear is irrational, unlikely or manageable. (That said, next week we’ll share a response we had to a reader about the risks in real estate, and when to know when the risk is too great to proceed). If you are too excited, then just take a step back. Don’t do anything for 24 hours and then see how you feel.

We’re really proud of Sherry and Curtis – they are making fabulous progress towards their goals. And they are incredibly smart and hard working people. They are taking time to educate themselves and they are reaching out for help to avoid the pitfalls that often trap new investors. They will be successful in their real estate ventures and in their life.

We don’t think they were making a life destroying mistake with the deal they were creating, but we do believe that they weren’t getting the best deal they could– especially in the buyer’s market we’re in right now. We knew they were emotional about the whole thing, so we know they didn’t think it through. It can happen to ALL OF US (believe us, we know)!

Some Words of Wisdom:

  • Those who have never made a mistake are doomed to work for those who have.” – unknown
  • The reason you are in negotiations are to do better than your alternatives.” –Keith J. Cunningham
  • Aim for success, not perfection. Never give up your right to be wrong, because then you will lose the ability to learn new things and move forward with your life.” – Dr. David M. Burns
  • Have a bias toward action — let’s see something happen now. You can break that big plan into small steps and take the first step right away.” – Indira Gandhi

Posted on June 6th, 2009

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