One of the questions I repeatedly get asked by other investors is if I had the chance to start over again, knowing what I know now, what would I do differently the second time through?
What a great question. It cuts to the core of what are the essential lessons of a lifetime of investing. Here is my six part answer to this question.
First: Realize it is never about the property, itís always about the motivation of the seller.
One of the biggest misconceptions about investing is that the most critical thing is the property itselfóitís condition and location. The truth is that both of this considerations are secondary to the motivation of the seller. If the seller is NOT motivated then no matter what the condition or the location of the property you still are not going to get a great deal. But if you have a motivated seller, then you have a great chance of turning a handsome profit no matter what the condition or location.
When this really sinks in it revolutionizes how you prioritize your search for finding great deals. No longer do you waste time doing due diligence and inspecting the house UNTIL you have made sure youíve found a motivated seller. Finding this motivated seller becomes the most important activity you can ever engage in. This is what you must focus your time, efforts, and creativity on searching for.
This also means that the highest leverage activity you have as an investor is to be sitting face to face with a motivated seller. Donít allow non-motivated sellers to waste a minute more of your time listing off all the wonderful features of their homes. You donít care about the house until youíve established the seller is motivated.
Second: Understand that if you never ask youíll never get.
When I first got started investing in real estate I was scared to death to actually make an offer to a seller. The root cause of this was my fear of them rejecting me and my offer (in my mind the two were the one and the same thing.) Over time I came to realize that this one mistake kept me from making offers that in retrospect I feel the seller would have said yes to. This ended up costing me hundreds of thousands of dollars in lost profits.
Today I see many other investors falling for this same trap. Sometimes it comes guised in the clothing of disbelief a seller would ever accept a nothing down offer. Sometimes it comes in the form of walking away from a seller with a promise to "get back with them" with an offer (rather than making the offer on the spot.) The clothing may be different but the cost is still the same.
The most important lesson I learned from these experiences is that NOT asking is an automatic no, and asking is never so painful as I might have imagined. Over the years Iíve asked for and gotten everything from extensions on the term of a seller carry back to money from the seller for a repair to free appliances. Remember, if you donít ask you donít get.
Third: Always maintain walk away power.
Looking back at all the properties I have bought, flipped, and lease optioned the one thing that is the common denominator for all the borderline deals is that at some point in the negotiation I had crossed over to the point where I felt I "had to" do the deal.
If ever you hear yourself saying these words, even if it is merely to yourself, push back you chair, get up from the negotiating table, and walk away. Iím serious about this. If the deal is that good, a small break while you take a moment by yourself wonít stop the deal. And by taking this time you might just keep your ego and your emotions from pushing you to make a deal that means lots of work and risk for little real profit.
It seems I fell into problems here incrementally. Iíd put $3,000 into a house to fix it up and then find it needed a$2,000 repair I didnít know about. So I would spend $2,000 so I wouldnít lose the $3,000, only to find outÖ you get the idea here. Beware this slippery slope and know when to cut your losses.
Remember, good deals are like busesóeven if you miss one, there will always be another one along before too long.
Fourth: Beware the "rehab" trap.
Have you ever caught the bug? "Fabulous wealth can be yours if you buy junkers and turn them into palaces" There are millions to be made in rehab projects, but before you go off and dive into this type of investing you need to do some serious soul searching. This type of investing isnít right for everyone.
As for me, Iíve discovered that rehabs arenít for me. In my opinion they all to often take too much money up front, too much energy to complete, and too much time to turn them when you sell. The first causes you to have too much risk. The second cuts in on your efforts to find more deals. And the third eats into your margins and cash flow and turns many an investor into a motivated seller!
Knowing this and how I feel about rehab projects Iíve come up with rule that I follow: if it needs more than minor cosmetic work then flip the deal to another party.
I want to make it clear here that this is my personal bias and that many investors love rehabbing properties and are well paid for it. Still, it is just not for me.
Fifth: Collecting money from a buyer can cause you to confront deeply hidden pitfalls from your past with respect to self worth and what it means to be wealthy.
This one might be hard to accept but in my opinion, one of the biggest road blocks to making a fortune in real estate are old limiting beliefs about self worth and money. Iíve went through this myself. When I got started investing I would have trouble selling the properties I picked up.
Why? Because on one level or another I didnít feel good enough about myself to think it was OK for me to be making that much money with so little effort. It was alien to me. Also, my beliefs about money and what it meant to be "rich" made making money a dirty thing for me.
I remember on some of the first properties I was selling it was uncomfortable for me to even collect an application fee from prospective tenant buyers.
It took several years to clear out this garbage and be comfortable with the wealth that was flowing into my life. My partner Peter Conti was instrumental in this effort. He provided me a great role model of a down to earth and ethical millionaire.
Who do you know that can be this kind of positive role model for yourself? Spend as much time with these people as possible. Also, there is a great book on the subject of money called, Your Money Or Your Life, by Joe Domingez. I highly recommend it.
This lesson deserves your attention and honest self evaluation.
Sixth: Youíll never know it all, but you can learn enough.
I was probably just like you when you got your start investing. I kept learning more and more but never felt like I knew enough. But then one day I realized when a person really knew enoughÖ
Itís not when you know it all because youíll never it know it all.
Itís not when you know all the legal aspects and contract clauses.
You know enough when you step out and take action knowing that youíll never know it all. This leap of faith is the final ingredient of success.
Get your FREE copy of this Best Selling 288 Page Book! "How to Create Multiple Streams of Income Buying Homes in Nice Areas with Nothing Down" by David Finkel and Peter Conti HERE
David Finkel is the best-selling co-author of, How to Create Multiple Streams of Income Buying Homes In Nice Areas With Nothing Down (ISBN: 1893384152). Ex-olympic level athlete turned real estate millionaire, he's taught thousands of students across the country how to be more successful investing. In fact, his students have bought, sold, and lease optioned over $100 million worth of property over the past decade. You can also visit him on the web at www.resultsnow.com.
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