Investing in real estate can be a success, but going it alone can be challenging and highly risky. Joint ventures, wholesaling, and property management are just a few ways investors can profit from real estate. It also takes a little savvy to become successful in this highly competitive sector. Below, we show it takes more than moxie and luck, detailing the 10 habits that highly effective real estate investors share.
KEY TAKEAWAYS
- Real estate is a challenging business that requires knowledge, talent, organization, networking, and perseverance.
- Becoming knowledgeable and educated about the real estate market is crucial, but this often requires more than just in-class learning.
- Understanding the risks, working with an accountant, finding help, and building a network are all part of finding success as a real estate investor.
While certain universities offer general coursework and disciplinary programs that can benefit real estate investors, a degree is not necessarily a prerequisite to be profitable in real estate investing. Whether an investor has a degree or not, there are certain characteristics that top real estate investors commonly possess.
1. They Are Planners
Real estate investors must be business professionals to establish and achieve short- and long-term goals. A business plan is a good starting point, as it enables you to visualize the big picture and focus on what’s important, rather than any minor setbacks.
Real estate investing can be complicated and demanding, and a solid plan can keep you organized and on task. The plan should include estimated outlays and inflows of cash from rentals, how many units to own, when to refurbish or upgrade units, demographic changes, and anything else that could affect your investment over time.
2. They Do Their Homework
Effective real estate investors acquire in-depth knowledge of their selected markets. Keeping abreast of current trends—including any changes in consumer spending habits, mortgage rates, and the unemployment rate—prepares you to adjust to changing conditions. This enables you to predict when trends may change and create potential opportunities. But this all starts with learning about your area of the real estate market. International real estate investor and developer Doron Yacobi agrees: “If you don’t know a neighborhood like the back of your hand, you don’t know it well enough to invest in.”
3. They Develop Trust
Real estate investors are usually not obligated to uphold any particular pledge of ethics. Although taking advantage of this situation would be easy, most successful real estate investors have high ethical standards. Since real estate investing involves people and requires their trust in you, your reputation will be important in any negotiations or sales prospects. Effective real estate investors know it is better to be fair than to see what they can get away with.
4. They Develop a Niche
Successful investors frequently focus on a particular part of the real estate market where depth of knowledge is essential. This can take time, but once you master a particular market, you can move on to other areas using the same in-depth approach. Some niches include high-end residential, low-income multi-unit housing, or rural farm rehabs.
5. They Generate Respect
Referrals generate a sizable part of a real estate investor’s business, so it is critical to earn the respect of business partners, associates, clients, renters, and anyone with whom you have a business relationship. Effective real estate investors pay attention to detail, listen and respond to complaints and concerns, and represent their business in a positive and professional manner. This builds the kind of reputation that makes others interested in working with you.
6. They Stay Up to Date
As with any business, it’s imperative to stay up to date with changes in laws, regulations, terminology, and trends that form the basis of the real estate investor’s business. Investors who fall behind risk not only losing momentum in their businesses but also risk legal ramifications when laws are ignored or broken. Successful real estate investors keep up on real estate, tax, and lending laws and regulations that could directly or indirectly impact their business.
7. They Are Prudent With Risk
Stock market investors are inundated with regular warnings regarding the inherent risks involved in investing and the potential for loss. Real estate investors, however, are more likely to see and hear those claiming the opposite: that it is easy to make money in real estate. Prudent real estate investors understand the risks of real estate deals and the legal implications involved and adjust their businesses to reduce those risks.
“The best piece of advice is to de-risk at the beginning,” said Nicholas Liberis, partner at architecture and development firm Albo Liberis.
Such a strategy means minimizing potential risks and uncertainties as much as possible before committing significant resources to a real estate project or investment. This approach involves a thorough assessment and risk mitigation at the earliest stages of the investment process. “You make money on the buy and not the sale,” Liberis said.
8. They Have an Accountant
Taxes comprise a significant part of a real estate investor’s yearly expenses. Understanding current tax laws can be complicated and can take time away from the business at hand.12 Sharp real estate investors retain the services of a qualified, reputable accountant to handle the business’s books. The costs associated with hiring an accountant can be negligible compared with the savings a professional can bring to the business. “Good tax planning can be as important as the asset acquired,” Yacobi said, “while bad tax planning can sink the investment.”
9. They Seek Help
Learning the real estate investing business is challenging for someone attempting to do things on their own. Effective real estate investors often attribute part of their success to others, whether it’s a mentor, lawyer, or supportive friend. Rather than risk time and money tackling a difficult problem alone, successful real estate investors know it is worth the additional costs to embrace and learn from other people’s expertise.
Mortgage lending discrimination is illegal. If you think that you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take.3 One such step is to file a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development.
10. They Build a Network
A professional network can provide important support and create opportunities for both new and experienced real estate investors. This type of group, composed of a well-chosen mentor, business partners, clients, or members of a nonprofit organization, allows investors to challenge and support one another. Because much of real estate investing relies on experiential learning, savvy real estate investors understand the importance of building a network.
What Is Real Estate?
Real estate is property and any permanent improvements attached to the land, whether natural or artificial, including water, trees, minerals, buildings, homes, fences, and bridges. Real estate is real property and differs from personal property, which is not permanently attached to land, such as vehicles, boats, jewelry, furniture, and farm equipment.4
What Is an Accountant?
The term “accountant” refers to a professional who performs accounting functions such as account analysis, auditing, or financial statement analysis. Accountants work within firms, internal account departments in large companies, or in individual practices. After meeting state-specific educational and testing requirements, these professionals are certified by national professional associations.
What Is a Business Plan?
A business plan is a written document that describes in detail the objectives of a business—usually a startup—and its strategies for achieving its goals. A business plan lays out a written road map for the firm from marketing, financial, and operational standpoints. Business plans are important for the company’s external and internal audiences. For instance, a business plan is used to attract investors before a company has established a proven track record or to secure lending. They are also a good way for companies’ executive teams to be on the same page about strategic actions and to keep themselves on target toward the set goals.
The Bottom Line
Despite ubiquitous advertisements claiming that real estate investing is an easy way to wealth, it is, in fact, a challenging endeavor requiring expertise, planning, and focus.
In addition, because the business requires strong relationships with people, investors benefit in the long run by operating with integrity and showing respect to associates and clients. Though it may be relatively simple to earn short-lived profits, developing a long-term real estate investing business requires skill, effort, and these 10 important habits.
