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, it's always about the motivation of the seller.
One of the biggest misconceptions about investing is that the most critical thing is the property itself-it's 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 you've 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.
Second: Understand that if you never ask you'll 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.
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. I'm serious about this. If the deal is that good, a small break while you take a moment by yourself won't 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.
Remember, good deals are like buses-even 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 isn't right for everyone.
As for me, I've discovered that rehabs aren't 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 I've come up with rule that I follow: if it needs more than minor cosmetic work then flip the deal to another party.
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. I've 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 didn't 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. It took several years to clear out this garbage and be comfortable with the wealth that was flowing into my life.
This lesson deserves your attention and honest self evaluation.
Sixth: You'll 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 enough… A person knows enough when they step out and take action knowing that they'll never know it all. This leap of faith is the final ingredient of success.
Next article in this series:
Getting Started with Creative Investing: How to Get Started Buying Homes With No Down Payment >>
