Knowing what not to do is almost as important as knowing what to do. As for real estate investing, there are many examples where doing just one wrong thing can cost you a deal or eat into your profits. This is why instead of lining up financing and looking at what markets to invest in, the first thing you should do is learn as much about the business as possible. If you are educated in the business and how it works, you will greatly reduce your risks of taking on a bad deal or getting involved in a bad situation. As simple as it sounds, the more you know, the better investor you will be. Educate yourself and become well-versed in the real estate industry before you even start.
Trying to know everything about the real estate business can be a daunting task. Between contact terms, mortgage jargon and rehabbing protocol, there are many areas of real estate to cover. The easiest way to learn the business is by taking on one area at a time. If you try to become an expert in all areas in your first thirty days you will become overwhelmed and lose focus. Start with the buying process and spend as much time as you need to before moving on to something else. Talk to your realtor about the steps involved and what you need to know. Some people learn best by doing, but before you get to that point you need to have a base of information to fall back on. If you don’t know what is going on or have a question with something, find someone to ask. Between your local network and your investing mentor, you should be able to contact someone and find the answer. Only when you feel like you are a master in one particular area you should move on to the next one.
Education is only good if you know how to apply it. There are many moving parts to a deal and many instances where a situation will change after making an offer or after taking ownership of a property. It is in these times when you need to be able to react and act on what you know. In most cases, it means listening to your realtor, inspector, mortgage broker or contractor. You should know enough about the process to know what is going on, but you should also know when you don’t know something. Your education may call for you to do something, but in the real world when dealing with real deals this may not be the case. Listen to the people that know what they are doing and may have a little more experience than you. Having a base of education doesn’t mean that you are an expert. The most successful investors and businesspeople are those that know when they need a little help or don’t know everything about a particular area.
Once you know enough to get started or have closed a few deals, your education should not stop. You should keep a running diary on every step in every deal you do. If you can learn why a deal wasn’t accepted or why your rehab wasn’t sold for top dollar, you can make sure you don’t make these mistakes again. Everything from the market you invest in to list price of your property should be recorded and reviewed. When you have down time, look at the settlement statement of your closing and see exactly where your money went. Take a look at your contractor bills and the costs of materials. Being an investor means that you are the CEO & CFO of your business, and everything in it. Much like the manager of a restaurant may have to jump behind the bar or in the kitchen when things get busy, you will need to know everything about every expense and every area. By monitoring what you do on your deals, you will accelerate your learning curve and know what not to do in future deals.
Things are constantly changing in the real estate market. The minute you think you know how something works, it will quickly shift gears. This is why it is so important to stay current with your education and how you invest. Something you may have learned even a few months ago may not be applicable today. Stay in touch with your realtor and mortgage broker and ask them to keep you informed of any new programs or guidelines. The short sale and foreclosure process alone has undergone changes in the last six months. If you were relying on outdated procedures or information, they can cost you a deal or lead you to a transaction that takes much longer than you think. A good base of education is necessary, but it is also important that you keep up with it every few months. The more you know, the better investor you will be.
There is always excitement about getting involved in a new deal. Unless you know what you are doing and how it should be done, you need to temper your enthusiasm. Education is the base for how you will do your investing, where you will do it and what you will get out of every transaction. Put the time in to know the business and education yourself in every area. Investing without education is a recipe for disaster.