Having been a real estate investor and entrepreneur for about 15 years, I created a set of rules that I follow and review on a regular basis. I discovered these rules through my personal experience and by speaking with successful real estate investors. They remind me what to do to thrive in good market cycles and navigate through the rough ones. So, here are the first 5 rules for successful real estate investing:
1. Commit to Your Goals
I’m sure you’ve heard this advice from many people before, but statistically, you are more likely to achieve your goals if you document them every morning and every evening before you go to bed. By writing down specific goals and keeping them centered in your mind, your mind automatically looks for opportunities, much the same way you begin seeing a car you want to buy everywhere you go. By maintaining these goals with specific amounts and dates, with measurables, you will reach it.
2. Stay Sharp
You must stay current with new ways of conducting business in the world in real estate. This means keeping up with podcasts, reading the trade journals, and attending conferences and meetings in person. If you don’t stay sharp, you will be doomed to follow other people’s bad advice. Gaining new knowledge will help make you a better investor.
3. Don’t Speculate
In my experience, it seems that there are many people that have not learned the lessons from the crash of 2007 / 2008; it is dangerous to speculate on deals and chase appreciation. It may be a quick way to build wealth on paper, but if you plan on building anything long-term, it’s best to rely on cash flow and force the appreciation of a deal that you are buying. To clarify, I’m referring to making renovations, adding amenities that tenants enjoy, and driving gross revenue that will impact the overall valuation of the property. In addition, building a strong property management team around that asset will maintain higher occupancy and keep tenants from moving which will also positively impact the net operating income. Buying a property and waiting without performing any work to improve it is wasting time and money.
4. Cash Flow is King
I’ve mentioned this in previous videos, but cash flow is always king. When all of your gross income can cover your expenses and debt, you have positive cash flow. This allows you to take down more deals, your portfolio, and increase your net worth. Never get into a deal where you have to kick up extra cash to cover the debt obligation. Every deal must stand up on its own even if your vacancy tips a little bit. Cash flow is always king.
5. Be Always In Buying Mode
If you commit to becoming a real estate entrepreneur, you are always watching the market and looking for opportunities. While I am primarily buying in Ohio, I keep my eyes open for deals outside of my target state. I am watching for deals but I am also looking to see how my market is priced versus other markets of similar sizes. I am also checking out secondary and tertiary markets to see how they perform. We have a hot market today, but I am actively looking for and taking down deals.
The great thing about the United States is that there are so many great markets and each one moves independently of the others depending on what is going on locally. This means that even though things are blowing up in Cleveland, the market in Nashville may be slowing down. Set up your targets, learn them well and stay engaged in those markets to be ready to take down a deal no matter where the economy at large is.
Anyway, those are the first 5 of my 10 rules for successful real estate investing. Check out the second part the the rest of the rules. Remember, as long as you have positive cash flow and operationally, the property is performing, you will be able to scale and grow your real estate business.
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