Almost everyone who asks me what I do for a living responds with an excited, “I’ve always wanted to that!” when I tell them I’m a real estate investor. I always smile and agree it’s great, but I know they’re probably naive about what it really takes to be successful. And most likely, they won’t take the time or energy to figure it out.
Real estate investing is my second career. I spent 30-plus years as a direct-response marketer and investment publisher before retiring a few years ago. Now, buying distressed residential properties, fixing them up and reselling them is my primary occupation. Think Flip This House with Tarek and Christina El Moussa or Flip It Forward with the Benham brothers — but without the added “made for TV” staging and sensationalism.
I love it! It’s both challenging and mundane with a perfect mix of art, math and science. And payday is rewarding — I’m working on my fourth residential rehab property right now and projected to make a 36% ROI (return on investment) — and that’s after allowing a generous monthly salary for myself, since I act as general contractor and personally do all the painting and many repairs.
Real Estate Is a Tangible Investment
One of the great things about real estate investing is you’re dealing with a tangible investment. When you buy a house, you have a real asset, not an electronic statement that represents shares of stock you own with fluctuating values over which you have no control. If the stock market crashes, your stocks tank and you have little to show for it.
It is much easier to predict a housing market downturn, and you can make strategy adjustments to mitigate risk. The best part is you’re always holding onto an investment that won’t disappear on you. You can walk through the property, touch the wood and examine the structure. You can improve it and get the satisfaction of seeing your planning and work transform the property. And you make a little piece of the world a better place — and provide a housing solution for a family — by turning a distressed, unloved property into a place where kids can grow up.
If you’re thinking about a part-time gig as a real estate investor — or jumping into real estate investing as a new career like I did — you’ll want to think about what it really takes, why many newbies fail and how to get started.
The 7 Traits All Successful Investors Share
I interact with real estate professionals and newbies almost daily, and I’ve noticed some characteristics shared by the successful ones:
#1: They’re (calculated) risk-takers
Real estate isn’t static. It moves up and down in value. Neighborhoods morph. Buyers browse and move on. And the risk of being wrong about various aspects is inherent in the business. You have to take some calculated risks.
Working with projections and estimates is par for the course. For example, you have to estimate your ARV (after-repair value). You also have to accurately estimate the total cost of repairs. With those two numbers, I can hone in on an offer price while factoring in holding and resale costs. But I always keep in mind I’m working with estimated numbers and make sure I’m comfortable with the risk of being “off” by a certain percentage.
You have to do everything possible to mitigate your risk and make sure your budget incorporates the unexpected.
#2: They’re skillful — and respectful — negotiators.
You have to treat other people as you’d like to be treated — and quickly recognize and move away from a swindler when you see one.
Don’t be intimidated by the experts — you need to call bulls**t on overpriced contractors. You’ll quickly discover what various aspects of rehab cost. I always get competitive bids. Price quotes for the smallest jobs can vary significantly. I bid out some drywall work recently, and contractor estimates fell between $940 and $2,880 — for the same exact work!
It also takes a willingness to politely negotiate. Replacing a roof in the winter can often be cheaper than in the spring. Since there’s less demand for roof replacements when temperatures drop — yet roofing companies need to keep paying their crew year-round — you can get a discount, but only if you ask for it.
#3: They’re both humble and stubborn.
My son was in 4-H as a youngster. One of the things this organization instills in kids is to “learn by doing.” That’s exactly what real estate investing is all about — there’s always more to learn.
It takes a humble attitude to take forward steps when you don’t know exactly what you’re doing, to ask for guidance, and to learn by making mistakes. It also takes stick-to-it stubbornness to learn by trial and error. You’ll make mistakes, but learn from them and move on.
#4: They’re focused.
Newbies tend to try every strategy possible with only 10% of the focus they need to have success with only one strategy. Pick one strategy and master it before going after others.
Many investors start as wholesalers — which requires much less capital of your own — and most burn out quickly. I haven’t personally done wholesaling, but I work with several full-time wholesalers.
To me, it seems like one of the toughest strategies, demanding a lot of research and cold calling to find motivated sellers who understand they’re not going to get retail offers on their house because of the shape it’s in. You also need to develop an extensive network of reliable and experienced rehabbers with cash.
#5: They’re good at multi-tasking.
This one is obvious. No matter what strategy you choose, you’ll wear a lot of hats. Therefore, you must be organized and adept at multi-tasking. In fact, you have to like it!
#6: They’re willing to put in the effort and time.
Many new real estate investors get excited and work hard for two days, then do nothing for two months. Time is money, yet “payday” as a real estate investor is often six months down the road. You have to keep moving forward every day and stay motivated.
I always know my monthly holding costs to the dollar — it’s $731 for my current project. Having that number in the back of my head motivates me to remember delays are costly — to my bottom line. One way I manage this is to constantly revise my “scope of work” document and do what it takes to make things happen. I carry around my notebook, put together daily tasks and complete them on a consistent basis.
#7: They do their homework before making an offer.
I have seen some messy deals — do-it-yourselfers who do everything poorly, inexperienced investors who get in way over their heads, and experienced investors who overestimate their capacity and end up in a cash crunch. To be successful in real estate, you must be realistic, master your strategy and have the knowledge, systems and team in place to make it happen.
Always do your due diligence thoroughly, double check your math, have a buffer in your budget for the unexpected and don’t overpay for a property. You can’t become emotionally attached to the properties and overbid — yet you must love them enough to want to do the work! Successful investors run their numbers and walk away when a seller is asking too much for the property.