Always Keep Your Real Estate Business Moving Forward
By Paul Esajian on June 12, 2015
The prevailing thought among new investors is that success happens overnight. They want their next deal to be their biggest one yet, or to suddenly have ten deals in their pipeline. While this is a great goal to have, it may not be very realistic. What gets investors in trouble more than anything else is failing to understand the process. Building a successful investing business takes time. Instead of only looking for home run deals your goal should be to simply make a profit. Small profits are always better than losses. If you keep your business constantly moving forward, eventually it will get to where you want it to go. To do that, here are four steps to help guide you through the process:
1. Always make a profit: If you have ever lost money on a deal, you know how devastating it can be. You put your blood, sweat and tears into a property for months – only to walk away with nothing. This can severely set your business back if you let it. The alternative is to look for safe deals in safe areas that are more inclined to yield a profit. Your time is certainly worth something, but a profit still gives you something for your time. There are many risky deals out there that can give you a higher return, but they can also wipe you out as well. By closing enough profitable deals a year, you can grow your business big enough so that you can take on a risky deal or two from time to time. There needs to be a good mix in your portfolio. By constantly looking for the next six figure deal, you have a better chance at losing money. Big deals usually happen when you aren’t looking for them, or from the contacts you make on smaller ones. To keep your business on the right track, focus on deals that you can make a profit on.
2. Use realistic numbers: The real estate business is dependent on numbers. They tell us what price to offer, the amount of work we should budget for, and what we can charge for rent. The problem is that we can make these numbers whatever we like. It is easy to plug something into a spreadsheet and assume that the bottom line is accurate. Regardless of what type of investing you do, your numbers need to be accurate. If they are off, eventually it will catch up with you. A rental property that you thought had great cash flow will quickly turn negative. A rehab that you miscalculate expenses for will become a money pit that you cannot sell. There is nothing wrong with passing on a deal that doesn’t make sense. If you need everything to break right and all the numbers to be perfect, there are better deals out there. The goal is not to be a part of as many deals as possible. It should be to get involved in the right deals that make sense for what you want to do. If you are not using realistic numbers you are only hurting yourself.
3. Avoid short term thinking: Everything you do in business impacts future steps you take. One of the worst things you can do if you are struggling for deals is to make things worse. This happens when you abandon your morals or integrity just to get deal to contract. It may work to get a closing, but you will develop a reputation. These reputations can be difficult to get rid of. Attorneys, realtors and fellow investors talk to each other. If you bend the rules or blur the lines of ethics, people know and will run from you if they see your name attached to a deal. Missing out on a deal may have a temporary sting, but it won’t last forever. Your entire business can be completely different 90 days from now. If you take a long term and big picture approach you can reap the benefits in the future. Conversely if you compromise your integrity and do everything to close only your next deal there may not be much of a business future left for you.
4. Contacts & Networking: Building a business often means increasing your local contacts and improving your network. Real estate on a local level is done by people in the specific area. The more contacts you have the greater chance that a deals will eventually come your way. This allows you to avoid large gaps between deals. Having deals to work on is great but eventually they will hit the closing table. If you do not have new deals to replace them your business will stall. It is important to take time every day and every week to network for new contacts or to cement existing relationships. It doesn’t take much but this is a critical step for any growing business. Taking the time to network may get tedious and boring at times but is important to keep your business moving forward.
The little things in business are often the most important things you can do. If you really want to have a sustainable business, you need to always keep it moving forward. Taking even small steps forward is better than moving backwards.