Most investors who dive into real estate do so with the intention of achieving success. But what does it take to be a successful real estate investor? Brian Tracy, a famous author and entrepreneur, said, "Successful people are just those with successful habits." After seven years of real estate investing, I couldn't agree with this statement more.
Success in real estate is less about what you invest in and more about the habits and principles you employ when investing. Fortunately, we live in an era where those who have achieved success share their methods, lessons, and practices, including these five habits of successful real estate investors.
1. Don't go in blind
Successful real estate investors never enter into an investment blind. They educate themselves on every facet of that investment strategy by doing their homework on the opportunity, the company, and the potential risks of the investment. Formal education is not required, but thorough education on how to invest in that type of real estate is imperative. Don't forget -- learning doesn't stop. Continuously educate yourself, network with others in your business, or join trade associations to support your ongoing knowledge of real estate investing.
2. Create investment criteria and stick to it
Investing is extremely personal. No investor has the exact same goals, return requirements, or investment preference. Successful real estate investors create specific investment criteria prior to investing that they use to help them identify whether an investment opportunity, company, or property is worthwhile. Some guiding criteria are:
- Return requirement: Is a 6% return on investment acceptable, or do you require a higher return like 10%, 15%, or more? Do you have a minimum cap rate you will buy at; for example, you'll only look at properties with a cap rate of 8% or higher?
- Length of investment: How quickly do you want your investment back? Six months or less, one year, two years, or are you willing to wait longer for a higher return?
- Risk tolerance: How much risk are you willing to take on?
- Location: Where do you want to invest? What are your target markets?
- Property size or characteristics: What type of investments are you targeting? Commercial property or residential real estate? From there, what are the characteristics of the properties you are targeting? Do you want properties where you can add value or ones that are already stabilized?
Determine your own realistic investing criteria, and stick to it. I can personally attest to the importance of not adjusting your criteria to fit an investment. The investment should meet your criteria or you should move on.
3. Conduct thorough due diligence
Another important habit of successful real estate investors is their ability to conduct thorough due diligence. Successful investors ask questions about the investment, run projections, inspect the property or investment, and calculate risks. They identify potential problems before they actually become a problem, and they use the information they gather during their due diligence to determine which investments are good opportunities and which are not.
4. Build a team
No one knows it all. Successful real estate investors recognize their strengths and weaknesses, utilizing the strengths of others to compensate for their areas of weakness. They employ the knowledge and experience of experts such as attorneys, real estate agents, accountants, bookkeepers, contractors, or property management companies. Build your team by networking with local professionals.
5. Run your investments like a business
The biggest difference between a mom and pop investor and a larger, successful investment company is how the investment is run. Many new real estate investors start their investment career placing themselves as the owner, property manager, acquisition manager, marketer, and bookkeeper, among other roles. Successful real estate investors outsource tasks to others, running their investments like a business. Working on the business, not in it.
While you may be able to do certain tasks like fix the toilet, coordinate repairs, or be the onsite manager, it's not always advisable to be the one to do it. Take a step back and build an investment business that can grow, scale, and operate without you.