What began as my savings for the purchase of my dream car back in the 1990s quickly turned into the hard-earned $20,000 that my mom refused to let me spend on anything less than an investment for a substantial return.
“You are not going to buy that stupid car,” she told me. And when I tried to venture off to the car dealership anyway, she forced me to spend my savings on a down payment for a condo. At 19, and against my wishes, my mom had turned me into an investor. She told me, “God can only manufacture one thing: Land. And I hear he’s not making any more of it, so buy now!”
Inadvertently, she taught me that to become a real estate investor is to become a business owner. Here’s what I've learned about investment and management since then:
1. Focus on monthly cash flow, not equity gains.
As a business owner, it is your task to create distance between the money flowing into your business every month and the expenses necessary to keep that business sustainable and growing. When you begin your investment research, you ought to be calculating how much renters will be able to put in your pocket each month, and then likewise ensuring that that number is greater than your expenditures. Maintain that formula and you’ll stay in the black.
2. Time can pay you money.
Time preference — also known as delay discounting — is a term economists and investors to use to describe the difference in something’s financial return over time. People who exercise a poor use of time preference trade a higher future income for the lower equivalent, because they lack the patience to wait for that greater dollar.
Investment requires patience, and the best real estate returns often come from a willingness to wait decades before cashing in on the big bucks that have accrued because of your home’s growing value. It’s also worth mentioning that you can be rewarded immediately and annually for your willingness to wait: Owning a home gives you tax write-offs and, if you run your business right, can mean that tenants cover all your monthly expenses.
3. Desperation is expensive.
Avoid problem tenants by doing your homework. A desperate tenant-seeker is bound to cost themselves more than a few dollars because of their impatience.
My early days in real estate investment came with many headaches: evictions, property damage, late payments, etc. It did not take many of these poor tenant experiences before my patience grew enough that I began conducting more thorough background and reference checks before saying “yes” to just anyone. First-come is not always first-served when it comes to renters.
4. Surround yourself with the right people.
From the outside, real estate investment can seem like a one-man show. But the best investors I know have made a habit of surrounding themselves with the right influencers and maintaining an openness to learn.
Establish a team. Join an investor networking group like REIN (Real Estate Investment Network), and then connect with real estate agents, accountants, bookkeepers, real estate lawyers and others who are connected to your goals. These friendships and professional networks improve your chances of success by putting you within ears reach of advice from diverse vantage points within the same industry.
The right idea from an accountant and lawyer could save you millions of dollars if you try to involve yourself in the right conversations.
5. Keep your eyes and ears open.
When people click on blogs, they tend to be looking for quick information that changes the way they perceive or act regarding people, markets, and their own lifestyle. While good investing takes practice, routine and diligence that can’t be immediately acquired through a single article, there are some quick tips that I find worth mentioning that can sharpen your performance and strengthen your investor toolbox right away:
- Pay attention to growing cities and neighborhoods. Sometimes the simplest advice is also the easiest to forget. The more a neighborhood grows, the higher the potential rent cost. The home’s value could similarly appreciate.
- Find places with good public transportation and schools. Renters pay attention to more than just the layout of a house; they want to know the efficiency of their neighborhood. If you can provide a home to someone in a neighborhood that will boost their confidence, further their career, or give ease to their daily commute, then people will be willing to pay more for that location.
- Get started early. Many people go into debt early in life which then results in their spending decades to pay back what they owe, even during times when they ought to be saving for retirement. Instead of taking the early-debt highway, learn to invest while you’re young so that you’re building toward an early retirement and a viable career.
- Leverage tech tools. We live in a connected and technologically prodigious world. The internet has changed the game of real estate; now, one can invest across the world, even from behind a computer screen. Companies like Home Union enable anyone to find properties, funding, investment reports and property managers online. One-stop shops like this are easy to find and the technology improves every day.
For those of you still on the fence about real estate investment, just take it from my mom: She knew when I was being foolish about where I wanted to spend my money, and she was kind enough to not let me waste the return I’d earned from years of hard labor. This article is my own extension of the generosity she taught me.
