For as many new investors that enter the business every year, there is also a large population that leaves. Instead of looking at real estate as a business, many view it as closing several individual deals. This, unfortunately, is not the case. Even if you only close a handful of deals, you need to have structure in how you make your decisions. Everything from setting up an LLC, choosing the best insurance, allocating funds to a business account and every other decision you make must be done with the thought of your business in mind. Those investors who just close deals are the ones that are out of the business within a year. If you are serious about staying in the business for the long haul, you will treat real estate investing as the business it deserves to be.
The first thing you need to do is to establish a business plan. In this plan, you will make decisions on what type of investor you want to be and what type of deals you will seek to get involved in. Your financing options will dictate many of your decisions, but you need to have goals and a plan in place. The more defined you are before you start, the more focused and efficient your business will be. Even if you only intend to invest on the weekend or in conjunction with your primary job, you still need to take these steps. In fact, it may even be more important for investors doing less volume to follow a plan. It is easy to get lost in the business if you are not careful. Any good business starts with a plan.
Running a business requires spending money. If you already have a few properties under your belt, you can still make business decisions. You will need to spend money on marketing, materials, overhead and possibly rent space. Every expense you make must be noted and accounted for. It is often very eye opening when new investors realize just how much money they spend on every deal and what their bottom line is. Every successful business knows where their money is being spent and is constantly looking for ways to reduce costs. In certain situations, it costs money to make money. However, you also need to know where every dollar that is coming out of your account is going.
The best investors are those that are constantly developing and maintaining relationships. It truly doesn’t matter if you are working on your first deal or have a dozen deals in your portfolio. If you do not network, you will end up either having to pay for leads or have a difficult time finding deals in your area. As a business, you should allocate some funds for this purpose exclusively. It is a good idea to develop some promotional literature on you and your business to distribute to potential contacts. Start with something as basic as a business card and work your way up from there. The more professional these items are, the better chance you have of someone wanting to work with you. Getting deals from your local realtor can be an effective method, but it shouldn’t be the only way you grow your business. If you are not networking and developing new relationships, even the best business will eventually slow down.
Regardless of whether you want to flip your properties or hold them for rent, you will face another set of business decisions. The rehab side is especially difficult if you do not have a good grasp on your budget and expenses. You also need to be able to line up contractors, plumbers, electricians and anyone else that will be working on your property. Most rehabs are done with strict estimates in mind and the slightest variation will impact your bottom line. You can certainly find someone to do the work, but it is more important that they do the work right and on your schedule. You are the CEO, CFO and owner of your business. If you want to maximize your profitability, you will know every expense and find the best people to work with.
If you are a buy-and-hold investor, you need to attack the business from a different perspective. Finding tenants, handling money and getting the best insurance may seem easy enough, but one slip can ruin everything you have worked for. If you rent to the first applicant that shows interest without properly screening, you are setting yourself up for a bad lease that could end up leading to an eviction. Inside your property you need to know how much was spent on any work, marketing, maintenance and any other expenses. At first glance, it may appear that you have a profitable property, but once all the expenses are realized and added up it could be a different story.
Being in the real estate business is much different than running a successful investing business. The sooner you start treating everything you do as a business, the sooner you will be successful. There is a fine line that separates successful businesses from those who languish in mediocrity. The investing business is no different. If you don’t treat it like you would any other business, you will not maximize your profits and can quickly run into trouble. Being an investor means more than finding good properties and doing good work. If you treat your real estate business like the business it deserves to be, you will gain access to more opportunities than you could have ever imagined.