To be a great real estate investor you need to follow rules. The rules you create will help guide you in everything you do. Without rules it is easy to jump at every new property that hits the market. Without a set of defined rules you can end up with properties that aren’t really profitable. Instead of working on quality properties you will waste time, and money, trying to scratch out a small profit. Before you make any offer you need to see that the property fits your criteria. It may be more difficult in finding properties and deals that are a match but the ones you do will be much more profitable. Here are five golden rules to buying great properties.
- Buy Properties That Create Value. To make money in real estate you need to be able to buy low and sell high. This isn’t exactly breaking news but it often gets lost on new investors. Buying a property and making some upgrades is no guarantee that you will make a profit. The single most important factor in any real estate purchase is the ability to create value. This can be done with buying in the right market or making the right improvements. Buying in the right market certainly helps create value but is far from the only factor. You need to be able to solve a problem. The seller may have a problem finding willing buyers and is ready to sell for a discount. A seller may not have the capital to complete all of the improvements and is ready to move on from the property. Before you make any offer you need to ask where and how you will create value.
- No Emotions. It is important that you take all emotions out of your investing decisions. There will be times when you follow a property for weeks and feel you have the inside track to purchase it. When you find that there is competition the natural reaction is to do everything possible to make sure it is yours. This often leads to irrational behavior and poor decisions. Regardless of how long you have pursued a property once the price gets too hit you just need to let it go and move on. Like the old saying goes there are other fish in the sea. The longer you stay attached and consumed with a property the longer it will take you to find your next deal. Letting go and moving on can be difficult at times but it is the best thing you can do to ensure you only pursue quality deals.
- Numbers. A major part of letting go is trusting the numbers. The market and the numbers should be the ultimate guide for choosing which properties to pursue. Not only do you need to look at the numbers but you need to make sure they are realistic. If you really want a property you can adjust the figures and data to make a property look as appealing as you like. By doing this all you are only hurting yourself. The goal of any real estate investor is not to acquire any property but to purchase the right one. It is critical that you let the numbers guide you with everything you do. It is not enough to take the seller or selling real estate agents word for it. Spend a little time and do your own due diligence on everything associated with the property. You never want to be caught off guard by something you should have found before you closed. If the numbers don’t work or if too much has to happen for the property to be successful you need to walk away and wait for the next one.
- Expect The Unexpected. Regardless if you focus on rehabs or buy and hold rentals unexpected items always happen. The best investors acknowledge and brace for these events to happen. It doesn’t mean they are consumed by negativity but they have systems in place to handle unforeseen events. There is nothing that can wipe a business out quicker than not having ample reserves in place. Without them you are walking a tightrope without much of a net. Your great tenants today could stop paying their rent tomorrow. The kitchen floor you want to replace may need to be dug up and started from scratch. There are many examples of unexpected items happening in every area of the business. Whether you have reserves in place or simply have the mindset to prepare for them you always need to expect the unexpected.
- Have A Good Team In Place. Most investors feel they can do everything themselves. When they realize this isn’t the case they often struggle. Before you move forward with any purchase you need to surround yourself with people you can trust. It is not enough to work with the first able person that presents themselves. You need to be fully comfortable with everyone on your team. Whether you know it or not but you will lean on your team more than you know. Not only will your team help get the job done but they will also make your life that much easier. Instead of handling tenant disputes your property manager will deal with them. If there is a problem with a rehab property your contractor will be first in line. Over time you will learn to trust your team more and your business will benefit from it.
By following a firm set of rules you are less inclined to veer off track every now and then. Recovering from a bad deal can take months, if not years. Before you get too far in your business make a set of rules you can follow on every potential deal.