Between 1963 to 1975 basketball coach John Wooden’s teams at UCLA won 10 NCAA championships, including 7 in a row between 1967 – 1973. At one point during that streak, his team won an unprecedented 88 games in a row over the span of 4 seasons!
It would be difficult to find a coach who built a more successful sports dynasty than John Wooden did. But what is most incredible about John Wooden was not his record of wins and losses. Most impressive to me was how he taught his teams to win like that.
A friend recently bought me his great book, Wooden – A Lifetime of Reflections On and Off the Court, and I found that his lessons on winning are directly applicable to our real estate investing businesses.
I think I can share the essence of his teachings with a story about blisters and socks.
Before each basketball season began, Coach Wooden had several meetings in the locker room with his team. The players that gathered in these meetings were some of the best and most highly recruited players in country, like hall of famers Bill Walton and Kareem Abdul-Jabbar.
The players sat on a bench in anticipation of great words of wisdom from their leader. Coach Wooden then broke the silence by telling these talented young players, “Men, today we are going to learn to put on our socks and our shoes.”
Ha, Ha! Can you imagine?
For 1-2 hours these young players who were some of the most skilled basketball players in the country never touched a basketball and instead practiced putting on their socks so that they had no wrinkles! They then learned to tie their shoes correctly so that they fit snug against their feet and so that the laces would not come untied.
Why were socks and shoes important? Because legendary coach John Wooden knew that details create success.
If a player had a wrinkle in his sock, he would likely get a blister. If he got a blister, he might miss a day or more of practice. If he missed practice, he would not play 100% in his next game. If he did not play 100% in his next game, the team might lose.
Therefore, putting a sock on correctly was the difference between winning and losing!
Like in basketball and in life, consistent excellence on the little-but-important things will directly translate to success in real estate, i.e. more deals, more cash flow, and eventually financial freedom.
So, what then are the “little-but-important things” that we real estate investors should focus more on? In the rest of this article, I’ll share 5 overlooked detail tasks that are the equivalent of putting on your socks.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
5 Essential Business Details Entrepreneurs Neglect
Important Detail #1: Bookkeeping
I loved Brandon Turner’s list of the top 100 BiggerPockets.com articles of 2014, but I could not find one article about how to keep excellent, organized books. I guess it’s just not perceived as fun or sexy.
But like putting on your socks correctly in basketball, excellent books can create success or cost you big in real estate investing.
I divide bookkeeping into a two primary categories:
- Document Filing: Save all bank/credit card statements, receipts, invoices, HUD-1 statements, and copies of rent checks into an easy-to-access and organized filing system, either in a file cabinet or online.
- Computer Ledger System: I use Quickbooks Pro for desktop to enter every financial transaction for my rental and my flip business (separate companies). The documentation in #1 mirrors all of these so that we have a piece of paper to verify every transaction in the ledger.
I’ll be honest. Running these systems to the point where everything is neat, organized, and tidy can be very tedious. Before I hired a bookkeeper, the work was often done after hours and on weekends. Is it really worth the trouble? Shouldn’t I just throw receipts in a shoebox and worry about more important things?
Coach Wooden would tell you the details are worth it.
First, what happens if you are ever audited by the IRS? Ask your CPA what would happen if you could not show proof (documents) for expenses. You could lose your ability to deduct the expense, which would mean you could owe a HUGE tax bill in addition to the the stress and trouble of the audit.
Second and more relevant than a rare audit, good books are your only true way of keeping score. Like in basketball, you want to be able to look up at the scoreboard at any point in time to tell if you’re winning or losing. Clean, accurate, and timely books are your business scoreboard, and they will tell you if your business finances are doing well or not.
Being objective, especially with yourself or your own business, is very difficult. Excellent books give you the mirror you need to see yourself honestly so that you can correct mistakes or accelerate successes.
Important Detail #2: Paperwork
Real estate is a paperwork heavy game. Think of all the paperwork you deal with when buying one property: deed, LLC docs, note, mortgage, title insurance, property insurance, business license, property management contract, repair contract, tenant application, lease, etc.
There are two important considerations I have learned with paperwork.
- Create a Good Filing System: Some people prefer digital, and others use paper. I would love to go all digital in the future, but for now I still use paper and file cabinets. I have a hanging file folder for each property, and the folders are sorted numerically. Within each hanging folder are several color-coded folders: red for insurance, blue for official property/mortgage docs, yellow for expense receipts, manilla for tenant payments, and purple for tenant documents.
- Hire Attorneys to Execute Documents: Do-it-yourself document creation can get you into big trouble. The problem is that you don’t know when or how the problem of your document could bite you. Simply hire a local attorney to prepare your contracts, notes, mortgages, LLC agreements, etc. On standardized documents, like Purchase and Sale Agreements and my Notes for private lenders, I will fill in the documents myself. But beyond that, let someone who knows more than you do the job.
Important Detail #3: Inspect What You Expect
Famous business thinker W. Edwards Deming once said, “You can expect what you inspect.” To me this means that I cannot just tell someone what to do. I have to:
- Clearly state my expectation
- Follow up with an inspection
- Re-teach expectations if not met
When I get busy in my life and business, I forget this principle or push it below other priorities. Unfortunately, painful experience has taught me that poor results build up and cause problems because of my failure to inspect and re-teach my expectations.
This shows itself most often with repair contractors. We hire contractors to do a multitude of details on our rental and fix-flip properties. Even the best contractors, however, require inspection and coaching in order to ensure that the result we want is performed.
I cannot afford to be on the job site all day micromanaging, but I do know the value of regular boots on the ground to inspect and coach contractors and other people who have been delegated business tasks.
Important Detail #4: Tenant Screening
The people in our real estate business will make or break us. In the rental business where monthly cash flow is king, nothing could be more important than recruiting and picking a tenant who will pay on time and care for your property.
Brandon Turner at BiggerPockets wrote “Tenant Screening: The Ultimate Guide,” which is the most comprehensive and well-written guide to the process I have ever found.
When you need cash flow on a vacant rental property, it can be very tempting to just put in the next warm body that comes along. This is one of those details that can cost you a lot of money and heartache over the long run. A bad tenant can cause you thousands of dollars in damage to your property, thousands of dollars in lost rent, and countless moments of unneeded stress and frustration.
Study this process in detail and learn to be excellent at recruiting and screening for the best tenants.
Important Detail #5: Deal Analysis
Most real estate problems can be traced back to purchasing a bad deal. This means you either bought the wrong property, paid the wrong price, or borrowed on the wrong terms.
Because this is true, becoming excellent at the details of deal analysis can help you increase your likelihood of real estate success many times.
I have written 3 BiggerPockets articles about deal analysis based upon the best in the business, Warren Buffett. If you need help in this area, you might find them helpful:
- 3 Business Tenets Necessary for Intelligent Real Estate Investing (Buffett Series)
- How to Use a Margin of Safety to Avoid Financial Disaster (Buffett Series)
- One Proven Piece of Advice to Improve All Your Investing Decisions (Buffett Series)
I also think another article by fellow BiggerPockets contributor, J Scott, is an excellent overview of the subject of deal analysis:
Which Details Are Preventing Your Success?
I hope that the example of ultra-successful coach John Wooden has convinced you that excellence with details is the recipe for success. As I always do, this is the time that I bring the focus back to you.
Which details are you overlooking that could be sabotaging your success? Are you weak in one of the 5 areas I have outlined above? Are there other details that you know are not getting done but should?
Please share your own story in the comments section below. I’d love for us to help each other grow and start winning more real estate championships this year.