What’s the very first thing you have to expect as an investor?
To expect the unexpected!
There are things you can count on as a real estate investor. For example, if you do your market analysis and run the numbers, you’ll know if a property is a good investment or not.
If you use the Profit Analysis Quadrant™ you will know how your investors and you will best benefit across the four quadrants.
If there is general rehab work to be done you can get a good idea of the costs involved to bring a property up to snuff. And you can figure out depreciable costs. If you don’t know how to get these numbers, check inside the members-only area. We have lots of tools you can use to help you in your real estate investing business.
But what about the unexpected?
How do you account for repairs that you didn’t expect (or couldn’t foresee) or costs that you didn’t include in your projections for any number of reasons?
That’s why you should always add healthy “reserves” into your budget.
If you are unfamiliar with the term, “reserves” are monies you set aside for things like roof repair and/or replacement, foundation issues that might spring up later, problems with plumbing or whatever horrific (and costly) thing that can go wrong in a property. You add that into your budget.
Set your minimum reserves by projecting costs for seven years from now. For example, how much does a new roof cost today and how much do you think that price might go up over the next few years? I chose the replacement roof scenario, because that’s something I’ve a lot of experience with replacing in my properties.
I’d like to tell you that I expected the roof of one of my properties to blow off or that I expected to deal with the fires that burned one of my buildings down more than once, but I didn’t.
However, I had planned for unexpected outcomes in my budget by setting reserves and by having good insurance. When the unexpected happened I was in good shape to address the rehab that was necessary to bring the property back to pre-event conditions.
Being prepared is the smarter path.
At the very least, I learned to expect the unexpected in any deal, so I was prepared for something… I just didn’t know what that something would be.
Here are a few tips to help you understand what to expect when you’re expecting to be a real estate investor:
Expect that you don’t know everything!
In fact, expect that you will learn something new in every transaction. Don’t act like you know something when you don’t. Two of the most dangerous words are “I know.” You will be much better off just listening and learning, even if you think you already know something. Learn to be the best listener you can be.
Keep your mouth shut and do not utter the words, “I know.” Stifle the urge to use that phrase.
I’ve been doing real estate investing for several years and I can tell you I’m still learning new things. That’s also the really exciting part about doing real estate. It never gets old and what I continue to learn never ceases to amaze me. I still get the same thrill out of doing deals as I did in the beginning.
Expect to make mistakes.
This is just part of the process of learning anything new. As I tell my students, if my youngest son were to try to look good while learning to walk, he wouldn’t have walked at all. He likely wouldn’t have tried.
Truth is that none of us look good when learning something new. That includes real estate investing. You don’t know which papers to use at first; you don’t know what to say to sellers, buyers and investors. Heck, you probably don’t even know where to find these people in the first place. And that’s all okay.
You’ll get there after you take your first steps. You’ll get to your goals once you’ve fallen a few times. You’ll get anywhere you want to go once you first learn to crawl, then walk and finally run to that destination.
Do not worry about looking good when making your first offers. Don’t worry about making mistakes. I promise you’re going to make a few… maybe many. You think I didn’t? I made plenty of mistakes. Some were pretty big! And I lived. I corrected my path and I kept moving forward. It’s the same with you.
In fact, why not embrace your mistakes? You’ll look back and realize it was just part of the learning process. Maybe you can help others avoid the mistakes you made. That’s what I try to do!
One of the reasons I started my Cash Flow Diary podcast was to share what I had learned along my path in real estate investing. One of my earliest episodes covers how to get started in real estate investing. You may want to give it a listen.
Expect people around you to be negative about what you’re trying to do… at first.
I’d be lying if told you that everyone in your life… even your loved ones… will be really supportive of what you’re doing when you announce that you have decided to become a real estate investor.
Um, nope. That’s not likely going to be the case. And that’s okay, too.
People in your life can be real downers when it comes time to tell them what you’re doing. They won’t understand your decision and they won’t understand real estate investing. To them it may be a lofty goal when you and I know it isn’t. It is something you absolutely can achieve; a lot of people have gone before you and carved the path. They did well, they reached their goals and they continue to reach new goals in real estate.
It doesn’t take a brainiac to succeed in this business; it takes perseverance and a good attitude. It takes the willingness to keep learning, keep digging, keep trucking forward even in the face of negative Nellies who tell us we can’t do that thing we strive to accomplish.
Do yourself a favor and shut those negative voices out. Even if those voices are coming from inside your head.
Don’t let the crabs at the bottom of the pot grab your legs and keep you stuck there with them. Get out and swim on your own.
If you’re afraid, that’s fine. Do it anyway. If you have negativity surrounding you, that’s okay. Do it anyway.
The voices will shut up when you show them your first fat check that you earned doing a real estate transaction. (I know from personal experience. So do many of my students!)
Expect that you can’t please everyone and that your success isn’t going to sit well with some people. Expect that you can’t control other people’s responses to what you’re doing; you are only responsible for your responses. Focus on the positive; step away from the negative. You’ll do fine.
Focus on the positive; step away from the negative. You’ll do fine. Click To Tweet
Expect that it will take some digging to get to the truth of WHY a seller is selling.
Here’s why you have to become a great P.I.G. (professional information gatherer) and you have to get good at asking simple questions that will get the seller to start talking. Becoming the best listener you can be will help you tremendously here, too. Using my “Really? Why?” technique should be your Golden Rule when talking to sellers.
Find out 1) if the person you’re talking to is actually in the position to sell the house, because he/she is truly the owner, and 2) why they are REALLY considering selling? Rather, you need to learn what their pain is so you can solve it with your expertise in getting deals done. Once you get to someone’s pain you can solve their problem more easily.
Once you have established that you are indeed speaking to the owner of the property who has the authority to sell the property, you can proceed to the having conversations about your taking control of the property, finding a buyer for the property or investing in it yourself. If you see that you can solve the seller’s problem and create income from it for yourself or an investor, it’s time to put the offer in.
I talk about this in one of my earliest podcast episodes. Maybe it will help you get out there and talk to more people.
Expect to have more than one conversation with sellers.
Before you put an offer in on a property, you’re going to have at least one conversation with the seller. After you put your offer in, you will have more conversations with the seller.
You need to get comfortable in having lots of conversations with lots of sellers, buyers and investors. That’s how this real estate investing thing works. The more conversations with strangers you can have in a day the better off you will be. That’s why I hang out several times a week at the Starbucks near my home.
I’ve done more business on the back of little paper napkins at Starbucks than you might think possible, and it all happens as a result of striking up conversations with strangers. All it takes to get one going is asking them one question… with 10 simple words.
Expect Realtors and brokers to speak a different language.
Realtors and brokers typically think differently than real estate investors do. It’s just a fact. While they can participate in investing, they typically don’t. They facilitate deals, they get listings and show properties on the MLS. However, you can find Realtors and brokers who also know about off-market deals.
It’s good to form relationships with these professionals, because once they feel comfortable with you and understand that they will get their fee when they do business with you, they will send you off-market deals that they run across.
Once you understand that there is a different mindset at play between the investor-type and Realtor-type, and you know how to speak their language, you can expand your reach. Besides, we usually need to work with a Realtor when it comes to the buy side of the deal, so it pays to find Realtors you can work with who are flexible and understand the benefit of working with you. (It’s not just one deal.) Establish the ground rules up front, so there are no surprises.
Establish the ground rules up front, so there are no surprises. Click To Tweet
Expect to do lots of due diligence.
Don’t count on others to do your due diligence for you. If you want the truth and nothing but the truth, do your homework, ask lots of questions, use the Due Diligence Checklist that I provide to you at no cost, and get really good at finding answers to the questions you seek. Then you don’t have to worry about what anyone else tells you about a property. You will know the truth.
Start by talking with the neighbors who live next door to the property in which you are interested. They tend to give you an unadulterated version. In fact, conversations with neighbors can be incredibly enlightening. But that’s not the end of your pursuit of the facts. That’s just the beginning.
Don’t blindly believe what a seller tells you either. They may not know every issue with a property. Besides, they want out and they may tell you things they think you want to hear. Be polite. Listen. Then do your due diligence.
There are no shortcuts in this part. Trust me on this one. You’ll have to walk through the process. You may not want to close a deal if you learn that a property has a lot of repair costs or zoning issues or any number of unforeseen issues that the seller hasn’t disclosed. Your offer has an out clause involving the inspection process. Use it wisely.
Expect things to take longer than you projected.
You can do wholesale deals quickly all month long, but with more complicated deals there can be hold ups that you didn’t expect. Say, for example, you have a piece of commercial property and you have a tenant that wants to lease your space. That can take way longer than you might expect.
Or maybe you need to use a contractor for a rehab. Sometimes a contractor’s time table works differently and more slowly than yours or mine might. They can move at their own pace unless you get things in writing.
If a contractor tells you it will take two weeks, get it on paper, and do not pay 100% up front. That is never wise. In larger projects it is very common that the contractor and his crew are paid over time to keep the project running smoothly and on schedule.
There can be different hold-ups on moving forward in a deal. That’s an article in itself. I’ll leave it at one great tip. Be prepared for hold ups and don’t get too freaked out about them. Breathe and keep moving forward in other parts of the deal while you wait on the slow boats to get to port. Expect to practice patience.
Expect markets to change.
It happens all the time. New markets open up; old markets don’t perform like they once did. Zoning laws can change. For example, say you are looking at investing in an assisted living home and as you’re doing your due diligence you find out the home’s owner forgot to re-up his license for that home. Two doors down there is another assisted living home, and because the zoning laws changed you can no longer have your home so close to the other home.
Maybe three months prior, when the rules stated that the homes could be 600 feet apart, you could have done the deal. You would swiftly move on that home. But now that the new zoning laws state that the homes have to be more than 1200 feet apart, the deal is suddenly a no-go… unless you can find another purpose for the very specialized, handicap-accessible home. (In that case, it’s time to do more research, call zoning and call the state.)
On the brighter side of changing markets, good things can happen. Where once there was no school or part or other neighborhood-enhancing addition, now there is. You have rental properties in that neighborhood. GREAT! Your property experiences an upshift in appreciation. The market changed and life is good.
That’s why you need to get friendly with the people at the city. Stay informed on what’s going on in the neighborhoods where you have properties. The people at the city planning offices know what’s coming soon to a neighborhood near you!
Expect to need a team as you grow your business.
No one gets to success on their own; it takes a team of people who share your vision. This is particularly true in your real estate business.
While you can start out wearing all the hats, doing all the tasks and making all the decisions on your own, you can’t keep that up forever. As a wholesaler, you can. However, as you ramp up your skills and start doing different types of deals, it will get harder and harder to do it all yourself.
God willing, and with all the action steps you’ll be taking, you’ll be investing in multi-family properties in short time. You’ll be adding lots of doors to your portfolio. And you will be adding team members. Like good property managers, contractors, an accountant, maybe a tax guy or gal, and then a CFO and COO.
Unless you plan to do all the marketing yourself, you’re going to need help on that side, too. It’s not just about operations once you reach a certain growth point in your business. You’ll put systems in place and you’ll need help running those systems. After all, any successful business has systems.
I actually talk about building a team in a few episodes of my podcast. In case you missed those, here’s a good one…
The good news is that you build your team over time.
Start with a good accountant who can help you keep track of your expenses and deals. Mine was a life-saver once I moved out of wholesaling and started doing more types of deals and bigger deals. She became my CFO, and she continues to be a life saver.
Find people for your team who balance out your weaknesses. For example, if you’re not good with or don’t enjoy the accounting part of the business, find someone with great math skills who loves doing those types of tasks.
If you are weak in your marketing, find someone whose strength is in marketing. If you are quiet, a good person to add to your team is a great communicator. I know several partnerships formed on that basis and they’re killing it in real estate. Maybe that’s because it’s easier to work out problems with another person’s help than to try to work everything out on one’s own.
I have a team and I’m grateful for them and their hard work to keep our ship sailing forward. Notice I say “our.” That’s how I feel. It may be my business, but it is our vision that keeps it operating efficiently and with a drive toward the future.
Expect that finding people on whom you can truly rely to take time when building your team. You can expect to kiss a few frogs.
If you put the time in to finding good people, you won’t be sorry. (And always be on the lookout for new team members just in case you lose someone on your existing team. Avoid the single point of failure!)
There isn’t enough room to go into everything you can expect as a real estate investor. In fact, that would be enough information to fill a book. You’ll learn these things as you move forward in your path.
If you want to shortcut the learning curve, start with my book.