For as many new investors that enter the business, there are an equal number that leave it on a yearly basis. Some may leave on their own accord, but for the most part, the investors that leave do not leave by choice. Years of bad decisions have a way of catching up with investors. Fortunately, there are some things you can avoid in your investing business that help put it back on the right path. Even if you are enjoying some success, all it takes is one bad decision to wipe away everything you have worked for. Therefore, assess every decision you make and envision which path it will put you on. With a little due diligence, good decisions will place you in a position to succeed.
Investors enter the business from many different paths. There are those that get their start by renting their primary residence, as a means to avoid a possible foreclosure. Others will buy a two family house just out of college and begin their career as such. There are those that don’t get started in investing until they are entrenched in their careers and start investing as a hobby. It really doesn’t matter how you get started or where you currently are, as long as you take assessment of every decision you make. One bad property, mortgage, tax filing or tenant is all it takes to bring down your business.
Start with the most basic of choices for a real estate investor – the types of properties they acquire. It is important to distinguish how you have gotten your deals up to this point. Have you been successful largely because of some good luck or have you put yourself in a position to succeed from your networking efforts? Every property has an element of risk vs. reward. However, before you make your next purchase, you need to look at your portfolio and see where you are. Could one more risky or over-leveraged purchase be the one that turns out poorly and causes you to lose money. Risk alone is not always bad, but if your portfolio is made up entirely of risky properties, you are just one broken furnace away from disaster.
Once you are in the business, it can be pretty easy to develop some bad habits or make some bad assumptions. You may have bought your first few deals from foreclosures and short sales when the market was near the bottom and the deals were pretty much a slam dunk. If you put the same amount of time in breaking down current deals you are just asking for trouble. There is a reason that some investors are more successful than others and it has to do with the work they do before they buy as much as the work they do after. Once you purchase a bad property, it is very difficult to do much with it. Your first few deals or even your first few years may have been easy, but you need to do your due diligence on every deal. Losing money on a risky purchase is one thing, but not knowing there is mold in the basement or there may be issues with the roof is just being lazy and reckless. Every purchase you make has to be treated like the most important one in your career.
There is also no excuse for not knowing what is going on in the business. The Internet and technology have made it easier than ever to stay on top of whatever you want to know about. The real estate business is one that is constantly changing. If you want to stay on top, you need to stay educated. This education can be cultivated in weekend boot camps if you are ambitious enough, but even local meetup groups, investing meetings and networking clubs can fill the void. You don’t have to scour through the newspaper every day to find trends and nuggets that can help you but you should have a good grasp on your local market and the market you invest in. A strong education will also help you structure deals and know which areas to avoid. Almost anyone can get lucky on a deal or two, but the more educated you are the more you will know which deals to avoid.
Finally, there are many investors who feel that because they only buy a few properties a year that they can treat investing as a hobby instead of as a business. Whether you buy a property a week or a few a year, you need to invest like you were a business. This means having a plan, goals, doing proper accounting and always trying to be ahead of the curve. It may take some extra time to call the references listed on a tenant application, but isn’t that better than dealing with an eviction? If you start to make every decision with the thought of your business in mind, you will make better decisions.
The real estate business can be the best business in the world, but it can end abruptly if you are not careful. With every decision you make, you should ask yourself what it will lead to. What you will find is that decisions regarding the properties you buy or the tenants you rent to will have a major impact on everything else you do. Real estate success is great, but the goal is to enjoy this success for as long as you want to. Only one bad decision can change that in a hurry.