By Don R. Campbell
Strategic investing is a math equation. Not just math on the property, or the region but also on the investors themselves. The equation is really quite simple in its math formula:
Action + Successes – Mistakes MUST = a positive number.
Seems simple, doesn’t it. In fact, too simple. The sad reality is that so many investors are afraid of the mistakes portion of this equation that they never begin to create the “Action & Successes” that can easily erase the mistake.
There is an unspoken reality that strategic investors understand: All investors make mistakes, some small and others larger. However, our job as investors is to ensure we are mitigating the impact of these mistakes (not fearing them) while we continue to strategically move forward with building our resilient portfolios.
Some investors actually insist on keeping a log of their mistakes for 2 reasons.
#1 SYSTEMS: To create systems or checklists so they ensure they don’t repeat them. Just like in any other business, creating systems reduce risks.
#2 MEASUREMENT: They also know that if they aren’t adding mistakes to the log, then they probably aren’t taking enough action to build their portfolios. They see mistakes as inevitable and by keeping track of them, they can measure their progress.
But wait. They don’t just focus on the negative (mistakes), most strategic investors also celebrate (and log) their major and minor successes along the way. Understanding that real estate success is a long-term journey, filled with some wonderful high-points along the way, celebrating these high points becomes a part of their success system. the more positives you create, the more celebrations you have… which leads to wanting to create even more successes… and the cycle grows in momentum.
While discussing this habit of logging both the good and bad experiences with a group of successful investors we came up with an additional list of do’s and don’ts that have served us well over the years. Here are…
The 11 Do’s & Don’ts
Here is our list, please add your own in the comments section of this blog post:
- TEAM MEMBERS: Build a strong team that supports your long term vision. Most beginning investors believe this can be done later, after they find a property or two. But us veterans know (from experience) that this is exactly backward. You need your team to be trusted, to be experienced and to frankly know who you are and what your plans are. If you begin creating your team under the strain of deadlines and accepted offers, you will pay more, you will not be a priority and you will waste valuable time (especially if it is a hot market). Most veterans insist that their team Members need to have extensive experience with real estate investors and in fact be investors themselves. These include: accountant, corporate lawyer, real estate lawyer, mortgage broker, realtor(s), research source, fellow investors.
- REALISTIC TIMELINES:Eliminate ‘Day Trade’ mentality when building your portfolio. Stock markets can move substantially on a day to day basis and because of this many investors watch their stocks every day. With real estate, that would just be a waste of time and effort. Real Estate markets move at a much more realistic and predictable pace. So obsessing about today’s latest housing stat headline will drive the unsophisticated investor to ultimate distraction. So keeping your outlook more based in economic fundamentals Fluctuations will always occur in the market, your job is to strategically work within these shifts.
- FALL IN LOVE WITH ECONOMICS: Study the economics that support your region – rather than national ‘averages.’ Averages, especially national, are a waste of time. Used mostly by outside agencies trying to comment on the health of a market. Become a specialist in one or two geographic areas. The smaller your niche the more apt you will be to be successful. It will be easier for you to stay focused on what matters to YOUR bottom line and not get drawn into nonsense discussions.
- FOCUS ON POSITIVE CASH FLOW – no matter what the market conditions positive cash flow is critical. It is the fuel the helps you build your portfolio, helps take the financial pressure off of you and fuels a bank’s ability to continue to say yes to your next deal. Without positive cashflow, you will struggle to justify growing your portfolio. With it, your life becomes less stressful and allows you to get closer to achieving the freedom of your Personal Belize.
- ASK FREQUENTLY: Don’t be afraid to ask anything of anyone. Learn from those more successful (or more experienced) than you. If they are too busy to help, ask someone else. There are no bad questions and definitely no reason to play the lone-wolf trying to solve problems on your own. It is pretty much safe to say that every mistake in real estate has been made, so if you make one, ask around to find the solution then move on.
- AVOID THE HIGHS AND LOWS: Don’t allow yourself to get too high when you hit a home run or too low when you make a mistake. This also goes for market conditions, if the market is screaming hot, don’t get caught up in it and when it comes back to normal don’t talk yourself into thinking you’ve made a huge error. It is what it is and as a business owner you can’t afford the emotional roller-coaster.
- DON’T HOPE OR GUESS If you aren’t given the time or the ability to complete due diligence on a property or its potential, don’t buy it. This can be in pre-build properties if you don’t analyze them as potential rentals, or in resale properties when you are being advised to put in a no-conditions offer. Both become pure speculation where hope plays a much too large of a part in your potential success.
- PRICE DOESN’T MATTER: Don’t buy a property just because it seems cheap – you may quickly find out that it wasn’t so cheap after all. A $800,000 property could be a better investment than a $20,,000 property – it all depends on how much revenue it creates and what the underlying economics of the region are. Just because, in the past, it may have sold for a large sum, and now you can buy it at 50% off that price DOES NOT mean it is a good investment. This is not like buying groceries.
- DON’T BUY ON BLIND FAITH: Don’t let a property promoter sell you a property without you doing your own due diligence on the property and the area. A promoter’s job is to sell you a property, that’s how they get paid. Your job to build a portfolio of properties that fit YOUR system. Thus, even if the property is promoted perfectly, make sure you take a moment to check numbers, check region and check that it fits within your investment system. If you feel pressured to buy, step away! The quick decisions are always the ones that turn into the mistakes.
- IGNORE TAX PLANNING: Don’t ignore tax planning in your overall scheme. Speak to a real estate specific accountant, give them your plan so they can help structure your whole program to minimize tax and to maximize protection.
- BUY ON HOT TIPS: Never, Ever buy a piece of real estate based on a ‘Hot Tip.’ Always follow your system – don’t skip any steps as they are there to protect you during market fluctuations (remember the discussion about mistakes earlier in this post). Many skip steps in the ACRE system during hot market times only to find that the steps they skipped are the ones that would have saved them during real market conditions. The steps are there for a reason not just for fun.
These 11 Dos and Don’ts of strategic investors were compiled during discussion of senior real estate investors, all of whom have been investing for over a decade. By following them you will reduce your risk and increase your chances of long term success.
Share them, use them and continue to invest strategically!