Many people are flocking to real estate investing with the wrong perspective on the business, and without the right mindset and total understanding of the field. As a result, many go down a path that leads to ultimate disappointment and frustration. Real estate investing can be an incredibly rewarding field but to be so it must be approached in the right way. To see what really works long term, it is helpful to model those that are successful, but this important point is missed by many that flock to the field based on limited exposure, unrealistic dreams, and undue influence by the very narrow and often biased training that proliferates in the modern real estate investment training arena.
In any field, one of the surest ways to success is to look at what others have done to become successful, and to model their actions. This is not to say copying another’s actions verbatim is the right approach, as creativity and ingenuity is essential for outstanding success, but modeling the core actions and behavior that worked in the past often results in a more sound game plan in the present. In the field of real estate investing, if you look at the most successful over time, you find several characteristics. Let’s take a look at some of these characteristics.
First, most successful investors focus on becoming wealthy over the
long haul. They realize that focusing on just quick turning real estate,
for example, is in most cases nothing more than a job and is unlikely
to create long term wealth. In fact, the vast majority of so called investors
that focus strictly on quick turn real estate fail to ever create any
long term wealth, and often burn out after only a few years in the “business”.
It generally relates back to the mentality, but there are many other factors
that play in as well, not the least of which are the tax implications
of quick turn real estate. The vast majority of people that develop long
term wealth in real estate investing do so by building a profitable portfolio.
Sound Business Basics
Active real estate investing is
an entrepreneurial activity, and as such must be done using sound business
principles. Those that become successful long term understand and practice
the basics. For example, in building a solid business, the owner must
understand legal principles, must have some basic accounting capabilities,
must be able to lead others, must be able to manage other people, must
practice delayed gratification, must have sound financial habits, and
must be willing to work extra hard with an eye on the future. And last
but not least, the astute business person knows that he or she must continue
to learn and grow, and that often it requires a couple of years before
financial success really begins to shape up.
Not Just Real Estate Investors
The vast majority of those who truly excel over time in real estate investing approach real estate investing as a part time venture, even if the time in real estate exceeds the time spent in other fields. They view it as more of an investment strategy and less of a career strategy. They realize that real estate investing goes through cycles, that it is difficult to realize all of one’s passionate dreams through real estate investing alone, and that earned income, through a source not dependent on the real estate itself, to some extent is essential to long term financial strength. Further they realize that real estate investing is only one of several pillars that are needed to truly develop significant wealth. Focusing on real estate investing alone may not result in the tremendous success many beginning investors dream of.
Examples that abound include the following:
Most successful investors start small and as they learn and refine a few workable strategies, and as they begin to build a profitable portfolio. Even those few highly successful investors that do it full time typically began part time and grew into the big time portfolio development and management. Unfortunately most of the new investors fail to realize how little they really know, neglecting that most of the true knowledge learned comes from in the trenches experience and that only a small amount of the knowledge learned in classes actually makes it into practice. Many are jumping ship to flock fulltime to real estate investing with limited experience and knowledge in this field, not realizing how risky this really is.
They fall in love with real estate, feel they can predictably make it on just a little knowledge and a lot of hard work, and fly by the seat of their pants. This is the biggest reason that the failure rate of new full time real estate investors exceeds the failure rate of new small businesses by a factor of over 5 to 1. The bottom line is reality will come whether you like it or not, so it is best to learn from the experience of others and start small and in a controlled fashion.
Many of those that are super successful in real estate investing began by working either under or with someone that was already experienced, typically someone with a decade or more of experience. A lot of times this is through family exposure, or through close associate or friend exposure. Those fortunate enough to work with an experienced investor and gently getting going while being exposed to real deals, either jointly with the experienced investor, or from the sidelines where the ins and outs of the business can be learned with minimal risk, often go on to become super successful. The amount of time this type of tutelage typically goes on varies by individual, but the most successful typically work in this arrangement for at least a few years before going full time on their own. Keep in mind that when you're working in such a fashion with a more experienced investor, you should not be focused on short term rewards, but rather on learning as much as you can so you can become successful on your own.
Real estate investing, especially residential real estate investing,
can be a highly emotional business. Those who succeed learn to develop
a certain level of emotional detachment. This begins with learning to
not let emotions get out of control when a good deal goes through and
the money flows, or when a deal falls through and disappointment sets
in. It ends with learning to control emotions when dealing with people,
whether buyers, sellers, or tenants. In business, allowing emotions to
run rampant can be a sure road to difficult times and inappropriate decisions,
and in real estate investing it is even more so. Keep those emotions in
Develop Financial Intelligence
Real estate investing is a money business. It starts with money and ends with money. Those that are successful in real estate investing long term have sound financial intelligence. They understand all aspects of the money game. They further realize that true financial intelligence takes not only diligent study, but that it also takes time to develop. Therefore, the development of financial intelligence plays hand in hand with the long term focus, and the willingness to start small.
Also, keep in mind that real estate investing is a diverse field, is
highly regulated, and requires a good amount of specialized knowledge.
This knowledge cannot be crammed like a high school class and requires
time to develop. Don’t kid yourself on your own knowledge level.
Take the time to learn it right before you put all your eggs in the real
estate investing basket.
We hope that you have found this article useful and we welcome your comments and suggestions on its content. Please visit our Discussion Forum to provide your input.
Copyright © 2004 Key Business Institute, Inc. All rights reserved.