I’ve done over 300 real estate deals in the last five years. And at every seminar that I’m involved in, the toughest question I get is this one: “Knowing what you know now, what would you do differently?”
Based on my current position and the blessings I have experienced, I really would not have done anything differently. I’m very pleased with my current situation as an investor, and I fear that if I had done anything differently, I wouldn’t be where I am today. In my opinion, a more appropriate question is: “Based on your experience, what direction are you going from here – and what advice do you have for a new investor?”
While my plan for the future is still in process, I do have nine tips to offer new investors.
1. Choose quality over quantity.
Beginning investors should do what they need to do to survive, keeping in mind that it is better to do one quality deal than a multitude of average deals. As a beginner, you must get into the game, but do it carefully with good deals. Then go from first to second to third to home, taking it one step at a time. Crawl before you walk and walk before you run. Otherwise, by rushing into things, you run the risk of making mistakes that will set you back months or even years.
2. Set goals and put them on paper.
I did not have concrete goals when I began, so two years after getting started, I was in about the same place as when I started. I ran around in circles and covered a lot of ground, but didn’t get too far from my starting point. Only then did I develop a plan. (Smart, huh? Only took a few dozen “seminars” and a few more whacks upside my head.)
Put together a plan sooner rather than later, preferably before you even start investing. Anyone who drafts a realistic plan and sticks to it can achieve as much in one year as I did in three.
Set realistic goals. Speak with experienced investors in your chosen field (e.g., wholesaling, rehabbing, lease-options, “subject to”) and get their honest opinions regarding profits per deal and the average time required to complete a deal. Then, based on this and your current resources of cash and credit, set your long-term cash, cash flow, and equity goals for one, three, and five years. Once you have these long-term goals, fill in your short-term three-month, six-month, and nine-month goals by outlining the steps you need to take to accomplish your long-term goals.
Unless you draft a plan similar to this and truly commit to it, you are going nowhere.
3. If possible, keep your best deals.
Looking back, I have owned a lot of homes that I wish I had kept. I don’t regret having sold them since every sale contributed to my success, but I did have some gems that have more than doubled in value since I sold them.
When I sold, I just didn’t believe that those areas would take off (as realtors and others were telling me). So I cashed out and used the profits for other things. If I had held the 50 best deals that I have sold to others and done nothing else, my net worth would probably be three times higher than what it is today.
Sometimes, though, it is necessary and understandable to sell a property for cash profits – even though it would be nice to keep it. Use your best judgment.
4. Don’t limit your profits.
When you purchase a great deal, don’t feel obligated to pass all of the savings on to your buyer. I could have generated more profits than I did from many of the properties that I wholesaled. Often, when I purchased a SUPER deal, I passed along the SUPER savings to my buyer with the attitude that I should only make $2k-$4k per transaction.
Well, this was a mistake. My advice to you is to take what you can get. Don’t inflate your prices above the market and gouge people. Give them a good value. However, don’t think it’s necessary to limit your profits just so a buyer can benefit. After all, this is business. Let the market set your price. There will be plenty of times when your profit isn’t as large as you expected. Take advantage of the big hits when they come.
5. Separate business and charity.
Sometimes, I used my business as a charity when I shouldn’t have. My recommendation for you is to never do the same. Don’t let someone live rent-free or give someone else more for a service than what it makes good business sense to give.
Don’t get me wrong. It’s okay to be charitable with your profits. I am. But you can’t be charitable with your business. If you give your business away before you make profits, that cuts your wellspring at its source. And you won’t have any profits to share.
6. Hold on to the J.O.B. as long as you can.
I know it’s hard to hear this, especially if you’re disgusted with your current position. But I recommend that beginners with good jobs hold on to them for a while. They provide a safety net while you are learning – and particularly allow you to establish yourself with banks and credit card companies. Convincing these organizations to work with you as a self-employed person is tough.
7. Start as early as you can.
I became interested in investing at the age of 18, and I wish I had pursued it from that age. Instead, I waited 10 more years to get started. As of this writing, I’ve only been investing for five years – and it’s hard for me to imagine, based on my current position, where I would be now if I had started when I was 18 years old. It’s never too late, but you need to start NOW!
8. Use partners wisely.
Use partners only when you need them. In other words, choose people with time, money, knowledge, or skills that you don’t have. They should bring to the table something that you need. All too often, two people with a dream and nothing else decide to be partners. Not good. Partners need to complement each other, not have the same qualities.
Nowadays, I teach others to use partners strictly on a deal-by-deal basis. The form of partnership I teach most often is one where one person puts up all of the money and the other is responsible for everything else.
9. Dare to dream.
Finally, I’d like to stress that if you can dream it, you can do it through effort and perseverance. Having money, a decent job, and good credit make investing easier … but they are not necessary.
When I began my career as a real estate investor, I had no money, no job, and poor credit. In the past five years, through the grace of God, I have come a long way. So set your goals and start taking the steps necessary to achieve them. Reevaluate and adjust every so often … but don’t quit and don’t let anything stop you.
“The man who does not make any mistakes does not usually make anything.”- William Connor Magee[Ed. Note: Stephen Cook is an author and active real estate investor. He pursues many avenues of investing, and specializes in the wholesaling and rehabbing of properties for profit.