Hey there, BP! So there are certain “rules of the game” in real estate investing. These rules are simple things that work consistently and will keep you out of trouble — most of the time. Some of these rules are common sense, but as they say, “Common sense is rarely common practice!”
Although the rules don’t change, they are hard to abide by all the time. I’ve been in this business for over 10 years, but I find myself bending and flat out breaking the rules at times — and paying the consequences for doing so! I should say that I am primarily a buy and hold investor, so the “rules” I am going to speak of are from that perspective. That being said, most can be applied to all real estate strategies. So let’s get to it!
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!
10 Real Estate Commandments All Investors Should Follow
1. Begin with the end in mind.
When you look at a deal for the first time, you should know how you are going to complete the deal. Is it a rental? A flip? What level of upgrades are you going to do? What is your budget? What is your final sell price or projected monthly rent and cash flow?
If you get into a deal without a clear path to exit, you can easily overlook potential problems. Even worse than that, you can find out mid-stream that your halfway thought-out plan is not going to work!
2. Stay focused.
It’s very easy to get distracted in this business. Another investor friend of mine calls it “chasing shiny nickels.” There are lots of deals out there. Some of those deals are really tempting due to their potential profit, even if they have nothing to do with where you want to go. Take it from someone who has done it: It’s a lot of fun to chase those shiny nickels, but know what they are — distractions.
3. Play the long game.
So there are plenty of ways to get a quick hit in real estate. While a quick shot in the arm is great, it’s not going to build your long term wealth. Successful investors play for the long haul. That doesn’t mean that they don’t take a quick hit deal, but it does mean that they don’t focus on them.
Their primary focus is long term wealth building deals, even if it’s on a smaller scale at first. I have been around for long enough to sit through a couple of real estate cycles. That’s when the long game really pays off, and I can tell you first hand that it can pay very well if you play it right.
4. Keep emotions out of it.
I probably break this rule once a week. I get my emotions pumping all the time in my business, but I have learned how to step away from them so I can make clear decisions. Plain and simple, emotions cloud judgment. Whether you are negotiating a purchase or working with a delinquent tenant or trying to work something out with a contractor, emotions can get you in trouble.
Those emotions can be fear, anger, greed, excitement and even despair. All of these will get you to do some crazy stuff. I have witnessed myself doing some irrational things in the heat of the moment. I’ve gotten away from actually taking action in these moments, thanks to a friend’s coaching. When I feel those emotions come up and start to influence my actions, I pause and take three deep breaths. Then I step back into the moment. It sounds simple, but it makes all the difference.
5. Know your numbers.
Real estate is a numbers game. You don’t get to use the excuse that you don’t like math when you’re in this business — because math is all over the place in real estate. Knowing how to run real estate projections is a learned skill, and the math isn’t that hard once you get the hang of it. Knowing and watching your numbers regularly will allow you to monitor your progress easily.
6. Stay positive.
This business has a ton of twists and turns. It’s very easy to allow some of these unexpected events pull you into a spiral of doubt. Trust me, it’s not you, it’s just how the real estate investing game goes sometimes. Going to that dark place can blind you to all your options and prevent you from asking for help. Don’t beat yourself up when you get into a rut, just keep your eye on the end of the deal and get creative to move through the obstacle. I have found that the only way you lose in this business is by quitting. If you stay in the deal and stay positive, you will see the light at the end of the tunnel.
7. Don’t grow too fast.
There is an old adage: “Pigs get fed, hogs get slaughtered.” Once you have a few solid hits in this business, it can be very tempting to try and scale up fast. Growth is good, just don’t grow to a point that you exceed your current capacity. It’s important as you grow to invest in your infrastructure to support more business in the future. The more you invest in your company’s capacity, the more sustainable your business will be. If you try and grow quickly without doing this, you run the strong risk of getting over your head.
8. Only do good deals.
This sound like a no-brainer, but there is a difference between a good deal and an “OK” deal. You might be inclined to do an OK deal if you are on the hunt and can’t seem to find anything to put your time or money into. You might find a deal right around the corner from a deal you did a while ago that worked out. OK deals don’t meet your profit requirements or have something else going on with them that makes them a marginal investment. The problem with these deals is that if ANYTHING goes wrong, you are in deep trouble. It’s better to do a good or a great deal, and when something unexpected comes up, you have some padding to absorb it.
9. Help other investors.
This is networking 101. Reach out to other investors and find out what they need to be successful. If you can, help them get it. They will help you in return. Sounds simple, but it’s not common practice. Even if you are brand new, you have something to offer. Of course it’s much easier to just be on the receiving side all the time. Being committed to supporting others will get you a good name in the business, build trust and get you into the networks of others quickly.
10. Have a mentor.
A mentor is someone who has been where you are in the past and is willing to help you get to your goals. They are standing where you want to be and can help you get there. Everyone should have a mentor of some kind, even if it’s someone you don’t check in with regularly. You should have them ready to take your call and vet something out with them if needed.
I find that a mentor is best served as a spot check when you are in a bind or need to make a decision. Just make sure that your mentor is getting something out of it to. That something could be the joy of working with a new investor, the desire to pay it forward or a commitment from you try and funnel them a deal or two when you can.
So to wrap it up, if you find that you bending or flat out breaking one of these rules, don’t be too hard on yourself. This business is forgiving if you are playing the long game!
What rules do you abide by in this business? Do you live by these and how has it worked out for you?
If you take any exceptions to my rules let me hear about that too! Let’s get a good convo going.