where to invest in real estate

It was a Saturday night. We were at a local pizza place with a handful of our real estate investing coaching clients after a long day in the field looking at properties, discussing office systems and evaluating neighbourhoods. We were laughing, telling stories and bonding. It was a good time, but one of our clients was missing.

He invests in the area and a tenant had called about a leaky shower. After the tour, he rushed over to the property, skipping dinner, to fix the leak.

In his mind, he was saving the cost of calling a handyman and since he was in town for the training anyway, he thought it was the perfect opportunity to get the job done.

All he saw was the money he was saving. But there were a lot of costs to his decision. He missed out on a lot of fun and informative conversation. He didn’t get a chance to bond with all of us in a relaxed setting. He also had to eat the few pieces of cold pizza that were left when he finally arrived.

It’s probably not surprising to find out that he feels a lot of stress from his real estate portfolio. I’m not judging this guy – not at all. I can identify what is happening because I’ve been doing things like this for decades. We still do. But here’s the thing – I am now very conscious of the choice to spend time to save money and what it really costs to do that.

I’ve realized something kind of shocking recently:

I can’t think of a decision I have made driven by money that has brought me much happiness or created better relationships.

As real estate investors, most of us are highly driven by money. Real estate education is totally financially focused. Success is measured by profit.

It’s not that money is a bad thing. Listen, we all need cash. The problem is the power we give to money and the price we pay for doing that. And this price is one that very few investors ever think about. 

When you take the power away from money, every decision in your business gets easier. You’ll gain confidence. You’ll choose better deals for you, you’ll find partners that are a great fit and even fun, you’ll work with tenants that take care of the home and stay for a long time, and you’ll find money comes to you for your deals instead of you chasing it! It all happens when money is no longer in charge of your choices.

Very few investors stop and look at their real estate business from the point of view of what will take the least amount of time, create the least amount of stress, or what will be the most fun to do. Most investors analyze the numbers, chase money from city to city, and focus solely on profit to drive investment decisions. The result? Investors get stuck or stressed or both!

Let’s look at five areas of real estate investing costs you’ve likely not considered:

1. Who to Invest With:

It’s so easy to get hung up on needing money for your deals that you don’t think about the emotional costs that you could pay when you invest with the wrong person.

We have one partner who asked dozens of nit picky questions in the beginning when he was evaluating the investment. We had a feeling he would be challenging but chose to ignore that feeling because he had the financial capacity to do multiple deals with us and he was friends with a group of successful business owners with cash for investments as well. Today, the mere mention of his name in our office fills us with stress. Even after several years of earning him a double digit return on his investment, he questions everything we do, right down the model of dishwasher we selected when the old one needed replacing. He’s never grateful for the work we do and it always feels like he is disappointed. It feels horrible. If he was our only partner we’d have zero confidence and damaged self esteem.

Ignoring potential issues gets even worse when it’s with a close friend or a family member. It also changes the relationship (Read More on That: The High Cost of Raising Money from Friends and Family). Friends and family are the most expensive place to raise money – it’s just that it’s an emotional price you’ll pay – not a financial one.

Today, we turn friends and family away and instead ask them for referrals. We also look for a fit. If someone isn’t going to be fun to work with, appreciate our value and be interested in a long term hold, then we’re moving on to a new conversation. Interestingly, ever since we started turning people away we’ve had people coming to us. Finding money has never been so easy.

2. What deals to invest in:

When you don’t have much money to invest, the choice of what deals you’ll do tends to be based on the resources you have. My husband Dave and I have done this many times in our twelve years of investing together. We’ve bought properties in areas where I felt unsafe parking my car, because we could do a deal with no money down. We’ve bought properties that didn’t have a foundation and were barely standing on their own just because a seller would give us a VTB. The reality is that those deals may not cost money at the start but they usually cost you cash before too long – sometimes a lot of cash. But, again, the price is far greater than just dollars and cents. Owning properties in rough neighbourhoods does not offer you much peace of mind. It also means you’ll get the most unsettling of calls (drug deals, tenant fights, and noise issues to name a few). You also could find yourself with a property in such a state of disrepair the fire department ends up being called in resulting in a long list of fire code violations that are very costly to repair (or you could end up in court pleading guilty to fire code violations as happened to us).

Instead of worrying about how you can do a deal without any money or banks, find deals you’re happy owning and raise the money you need to make it happen. Or, don’t invest while you save up. Either way you’ll be much happier than if you just do the only deals you think you can do when you’re lacking the resources to start.

3. Where to Invest:

Everyone talks about investing in a city with great economic fundamentals. It sounds great, but do you really want to travel to find properties, set up a team, oversee your business, and grow your portfolio? Are you REALLY excited about hanging out in Edmonton, Hamilton, St. John’s or wherever that newest hot spot is? (Watch the video on this: How to Choose Your Investment Market – Two Things Nobody Considers)

I’m not suggesting you invest in a town that is shrinking or where everyone is unemployed, but when you choose your market, realize economic fundamentals aren’t as important as making sure it’s a fit with your life.

4. Why You’re Investing:

Are you trying to create a full time job or are you creating a business to build wealth and give you freedom?

We wanted freedom yet we were so focused on making money that we bought properties in bad areas, that attracted hard to deal with tenants, and were spread out all over Ontario and BC.

Being driven by the numbers not only led us to do the wrong deals, it also led us to take the wrong tenants. When you’re driven by an ROI (return on investment) you will feel a tremendous amount of anxiety over a vacant property. One time we were about to have a vacancy and we were so worried about cash that we took the only tenant that applied even though there were a few red flags. Within a month she had pulled a knife on her roommate and had stopped paying rent. It took us three months to evict her – we lost out on three months rent, court filing fees and unit clean up costs all because we rushed to avoid a month of vacancy.

Today, our business is set up to support us, NOT the other way around. We focus on what our ideal day looks like and weigh each investment decision against whether it supports us or not. That means we do fewer deals than we have the capacity to do, we stick to a proven model, and we are very picky about our tenants even if it means losing a month of income. Ultimately, it’s a business and it has to be profitable but the most important thing to us is whether it’s supporting the life we want to live.

5. When to Spend Your Time or Spend Your Money:

You can save time or you can save money. Usually you can’t save both. You can hire a property manager and save time, but it costs you money. They won’t love your property like you will. You have to pay them to oversee it, and they will charge you for handling issues like renovation and tenant placement. You can find an investor to fund your deal so you can grow your portfolio but you will have to spend a lot of time finding them, building a relationship and overseeing the deal. Another person adds complexity. You can potentially make some cash by buying, renovating and flipping a property but you can also expect to spend a ton of time and energy to make that happen. You have to choose what is important to you and be ok with it. In order to do that, you need to be aware that the costs extend far beyond a spreadsheet.

Our client chose spending time over money but he was also feeling frazzled and frustrated. He made a choice but didn’t realize the price he still paid. You need to take a hard look at what you really are willing to spend and be comfortable with it, or try a different investment strategy. Real estate investing isn’t for everyone!

Doing high quality deals with great people makes real estate investing fun. But it’s really easy to get side tracked from that, thinking you have to do more deals to make more money. If you’re too hung up on money then you’ll lose site of what real estate investing can do for your life and the importance of your relationships in your life – not the deals.

And the funny part is that when you change your focus – your business changes.

Other Articles You Might Enjoy:

>> The Neighbourhood Price Ceiling

>> The Passive Income Myth

>> The Time Management Secret Nobody Else is Talking About

Image 1 Credit: © Ambro10 | Dreamstime.com
 Image 2 Credit: Julie Broad
 Image 3 Credit: © Vasilii Shestakov | Dreamstime.com