What Does it Take to be a Successful Real Estate Investor?

By Alfonso Munoz, Mentor in the Houston Office

In preparing this article, I asked that question to five different real estate investors, and as fully expected I got five different answers. Ironically enough none of those five answers had anything to do with real estate. On the surface, that may seem peculiar to the new investor, but it makes good sense. What if, for example, if you asked a successful baseball player what it takes to be a great baseball player; what do you think he would say? Would he give you an answer that has to do with baseball, or would he give you an answer that has to do with work ethic? Would he tell you to find the best bat made of the best ash wood, and a glove made of the highest quality leather? Or would he tell you to practice every day? I honestly don’t know what he would say because I didn’t talk to any baseball players, but more than likely he would say very similar things that a successful business man would say, or a successful model, or a successful real estate investor. We all know the secrets to success, and we all know that they aren’t secret.

Before I get to those five different answers I would like to offer some helpful information that does deal specifically with real estate. After all, real estate investing is what we teach here at Lifestyles Unlimited. There are intangible characteristics that are needed to be successful, and there are specific skills that are also necessary. In no particular order of importance, the first skill I would like to mention is to KNOW YOUR MARKET.
You have to know what a piece of property is worth if you are going to make the decision to invest in it. The simplest way I can say to get to know your market is by studying your market. When I first joined Lifestyles Unlimited, I attended Del’s two day class and learned about the kind of property I should be targeting, and the price range I should be targeting. Then I started looking at literally dozens of properties in that target range. I looked at properties in all parts of town; east of town, west of town, north and south of town. I did a cash flow analysis on all of them. It was completely redundant, but it gave me a firm understanding of what was a good deal and what was not a good deal. It helped me to understand which properties would cash flow. It also gave me a good understanding of which parts of town would best fit the model of investing that we teach at Lifestyles Unlimited.

LEARN HOW TO DO A PROPERTY EVALUATION. That’s the same thing as knowing your market, I just phrased it differently. You have to know how to evaluate a property to determine if it will make you money. How much are other similar properties in the neighborhood selling for? Once you know that, then you know how much of a discount you can buy your target property. You get to decide your rate of return. If you want to buy at a 10% discount, then knock yourself out. If you want to buy at a 40% discount, then you have the choice to offer at that price as well. You cannot do that with stocks. You cannot choose your rate of return with any other investment. How much rent can you charge for you target property? Make sure that rent is enough to cover your payment, including principle, interest, taxes and insurance (PITI). The difference between your rental income and your PITI is your positive cash flow. Save some of it for unforeseen expenses.

Another thing you will need to do is COME UP WITH THE MONEY to buy your positive cash flowing property. Financing is the biggest obstacle most people face (after fear, hesitation, procrastination, etc). Lending standards have tightened up over the last couple of years, since the financial catastrophe of September, 2008. In a sort of ironic spiral of negativity, the banks are requiring more of borrowers, but because of a slow economy, and high unemployment, there are fewer qualified borrowers. For the banks it isn’t a big problem because they can just go to Uncle Sam and get a bailout. But for the investor, it can be a problem. It is for that reason that many investors are through using banks for their borrowing needs. This may or may not be an option for you. If you have good credit, and a favorable debt to income ratio, then using a bank is an option for you. It is probably the simplest option.

If you do not have good credit, or if there are other obstacles in your way when it comes to qualifying for financing, then do yourself a favor and explore other options out there. Rather than getting “NO” after “NO” from the big banks, go check out smaller mortgage companies that specialize in working with investors. If they survived the financial meltdown of 2008 then they are more than likely an ethical company that was not breaking the rules, and stable enough to meet your borrowing needs. Another option you have available to you is a private money lender.

What is a private money lender, and how do you find one? A private money lender is simply an individual, or group of individuals who have money and are willing to lend it to YOU. They bring the money to the table; you bring your knowledge, or your time. They don’t want the paltry 1% return that the banks are offering, and they don’t want the volatility of the stock market. So they are willing to lend money to you so that they get a higher rate of return, and you get the money you need to buy your properties. It is truly a win / win situation. So how do you find a private money lender? The same way you find a good job, or a good mate, or a good mattress. By looking! By networking, and asking around. By letting people know you are a real estate investor, and you are looking for private money sources. Naturally, if you go out on the street and start looking for a private lender, your odds of finding somebody willing to lend you money are slim. So don’t look for a money lender at the bus stop, or in the supermarket; look for them at investment seminars, at real estate investing workshops / classes, in the classified ads. Get involved with groups that attract investors. They are out there, you just need to find them.

So now that you know your market and you know how to evaluate a property to determine if it is worth pursuing, and you have the financing secured, what do you do? Now you make an offer. It does take some degree of courage to make your first offer on a piece of investment property. The first time I was going to make an offer on a house, I was up all night long tossing and turning in my bed because I was so nervous. In the morning I did nothing. I lost my nerve. I let the deal slip away. It is perfectly natural to have that fear. We all do. Face that fear and overcome it.

So what are the characteristics shared by successful real estate investors? Now back to the five answers I got from successful real estate investors. Like I said at the beginning of this article, I asked five successful investors what they feel it takes to be a successful investor. What did they say? First, you need to WANT to be successful. On a daily basis, I meet people who say that they want to be a real estate investor, but they aren’t willing to make any sacrifices, and they aren’t willing to put forth any real effort. They want to get rich, retire, travel, etc. They want to live the lifestyle, but they don’t really want to try too hard to achieve it. Nor do they really try to learn how to achieve it. So deep down, they don’t really have a burning desire to be successful. Having a desire to succeed means you are willing to take the time to learn. Learn your market, learn how to evaluate a deal, etc.

Another characteristic of successful investors is humility. To be a successful investor you should have an understanding that you do not know everything. That means you need to learn from others, and you should be willing to ask for help. Find a mentor. Know your limitations. Understand that although you can paint a house for cheaper than a professional, the amount of time it takes you to complete that task will likely be greater, and that is equal to losing money. Many experienced investors come in to Lifestyles Unlimited and after attending our 2-day class they realize how differently they could have been managing their properties. They already have experience investing, but they are willing to learn things they never thought about themselves.

A successful investor practices self discipline. As in any area of your life, self discipline is absolutely one of the keys to success. A friend of mine who is a brand new investor just did a deal that netted him over $45,000 in equity capture, on his FIRST deal. How did he find such a home run deal? He had the self discipline to wake up every morning and search for properties before going to work. That way he could be the first person to call an agent when a good deal popped up. It may sound tedious, but he found this deal after less than one month of looking. Would you wake up an hour early for one month to earn an extra $45,000?

Exercise your risk tolerance. Courage and risk tolerance, like a muscle, gets stronger with use. I certainly do not encourage you to be a big risk taker. In fact, at Lifestyles Unlimited we teach a very safe method of investing that has protections built in at many levels. But it may seem like a risk none the less, to buy a house that you have no intentions of living in yourself. Until you take those calculated risks, and exercise that risk tolerance, you will never be able to excel. Again, I am not encouraging you to be foolhardy, but I do encourage you to learn which chances are worth taking, then take them.

Be a good decision maker. Once you make a decision, do not second guess yourself. First make a decision, then MAKE IT the right decision. If you decide to change jobs, MAKE IT the right decision. If you choose to marry, MAKE IT a successful marriage. Do not question your decision, instead make your decision work. I think its ok to change your mind once you reevaluate the situation. For example, legendary basketball coach Don Haskins, who’s team was the only one in the state of Texas to win an NCAA men’s basketball national championship, decided to leave his job at the University of Texas at El Paso to pursue a job at the University of Detroit. He drove the 1000+ miles to Detroit, stayed there one day, then turned around and drove back to west Texas. He ended up coaching at UTEP for a total of 38 years…minus one day. I don’t think he second guessed himself. Instead, he reevaluated and made a new decision. What ever decision you make; MAKE IT work. The key is you must make a decision. To quote a famous song, “If you choose not to decide, you still have made a choice”.

There you have it. Now that the big secrets to success are out, spread the good word. When you MAKE THE DECISION to WANT SUCCESS, then go out and FIND A MENTOR, and HAVE THE SELF DISCIPLINE to learn from his or her success. TAKE A CHANCE. Feel free to chime in and share with other readers what you think is the biggest secret to success. I do wish you well.

Comments

  1. Chris Robinson says:

    Well said sir! It amazes me every time I talk with a new investor how worried they are about all of the things that they need not worry about and how little they put towards the most important aspects of this business.

    Of course, I should not be that stunned by this since I did the exact same thing when I was new to this business. I spent hours… days… weeks… months… years… concentrating and worrying about things that I did not need to instead of just finding a mentor and following a proven plan.

    As I have mentioned on the radio many times, this business is not rocket science and it can be fun and rewarding if you have a solid system that you can follow and if you can keep yourself from trying to reinvent the wheel and making the same mistakes that someone has already learned from.

    If someone would have told me 2 years ago (before I joined Lifestyles) that I could be using other people’s time and effort to find my deals, evaluate my deals, process my deals, rehab my deals and sell/lease my deals all while making more money than doing it all myself I would have laughed in their face. Especially when they mentioned to me that I would be using other people’s private funds to do my deals and would not need to use my own money.

    Don’t make this harder than it needs to be folks. Find someone who has done it successfully and simply do what they did.

  2. Great article and research Alfonso. Well done.

  3. “Many experienced investors come in to Lifestyles Unlimited and after attending our 2-day class they realize how differently they could have been managing their properties. They already have experience investing, but they are willing to learn things they never thought about themselves.” IT IS SO IMPORTANT TO REITERATE THAT LIFESTYLES IS IN PLACE FOR THE NEWBIE AS WELL AS THE SEASONED INVESTOR!

  4. Shirley says:

    You nailed it !! The thing that hold most back is taking the chance. It seems like a HUGE thing but when you do and see how it is done you wonder – Why ? Why have I let so many opportunities pass me up from not taking a chance. If you think about it we take chances everyday just by driving and no one seems to let that inhibit them as much as they let the thought of Real Estate investment inhibit them. I am glad that we are members of Lifestyles and we took a chance !! Thanks Alfonso !

  5. Alfonso says:

    Thanks Steve.

    Chris, I’m glad you mentioned that you made the mistake of worrying also. I specifically wanted to include in my article the part about how I worried SO MUCH about my first deal.

    Even my friend who I mention in the article, the guy who landed the $45,000 equity capture, is worried about his deal. It’s still being rehabbed and he’s terrified that he won’t be able to rent out the place. It’s natural to worry, but you’re right that it isn’t necessary.

    I appreciate your follow up guys.

  6. We are Principals. We are full service Developers (www.bgigroup.ca ) with a Private banking arm. (www.bgicapital.ca ), and a US subsidiary.

    We are based in Toronto Canada (47 years experience) and have sourced various US distressed product through Non Performing Note or direct asset purchase valued at
    $5Mil – $500Mil.

    We are looking to JV with investors/partners on added value deals in prime US markets.

    We’ll look after delivering the finished product, whether it’s Rehab, stabilization, or construction completion of incomplete projects – Multi family, Condos, Hotels/Resorts, Retail, Office, Recreational.

    We can also act as Development Managers or Loan Monitors of your problem deals to do turnarounds or Workouts.

    Contact –
    BGI Group
    per: Ian Jones (MRICS) President ian@bgigroup.ca direct – 416 689 7523
    http://www.bgigroup.ca

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