First Rental Property

The journey continues.

Real Estate Investors are continually gaining more experience in the world of real estate investment. That is of course if they are the type of real estate investor who chooses to take continuous action.

Part One of The Evolution of a Real Estate Investor discussed the first 2 stages that a real estate investor experiences.

The first stage that occurs results in the real estate investor feeling that real estate does not exist. In this stage, the investor is definitely not an investor at all at this point. They have no interest in real estate and see no benefit in investing in a rental property.

As the investor moves into the second stage, this is where they find that something happens with real estate. In this stage, something significant happens in the real estate investor’s life with respect to real estate. As a result, they take notice of this occurrence.

We will now take a look at the third and fourth stages in the evolution of a real estate investor.

The Third Stage

You become interested in real estate

It is noteworthy to mention that there is a big difference between the second stage and the third stage. In the second stage – something happens with real estate, an investor’s interest in real estate has not yet developed. It is only in the third stage where a true interest in real estate begins to form. This stage is one of the most exciting stages. It is an exiting stage because the individual begins to see real estate in an entirely different light. What was once uninteresting houses or buildings, now becomes assets that cash flow. Once the individual’s interest develops, they will no longer view real estate the same as they did in the past. In this stage, you as the individual become very excited about the specific aspects of real estate that interests you. In my particular case, I became very interested and fascinated by all of the new development that was occurring in my town. I developed an extreme interest in the construction of new homes and subdivisions which I am still very interested in even today. As this interest develops, you may spend more time speaking to friends, family, or acquaintances about their experiences with real estate. At this point, you will really talk to anyone about real estate that is willing to have a conversation with you. You may be out in a public place such as a restaurant, and if someone 15 tables down from yours, sitting in the corner of the restaurant is having a conversation about real estate, you hone into this conversation, and can hear every word of it. This happens to me all the time when I am out and about. If people are having a conversation about real estate, I often, always listen very carefully.

The Fourth Stage

You begin to research real estate

Once again, there is a big difference if you compare this fourth stage to the previous third stage. In the third stage, your excitement level is high, and you are so thrilled about real estate that you just can’t contain your emotions. This is where stage three ends.

Stage Four is where you take things to the next level, and begin to make some serious progress towards your eventual purchase of a rental property. This is the stage where all of your research begins. This is a significant stage, because to this point, the real estate investor has never done this type of analysis before. Remember, the real estate investor has previously been at a point where they had felt that real estate did not exist. They were indifferent to real estate as an investment. Then they got to a stage where something happened with real estate that resulted in them becoming very excited and interested in it.

The research stage can vary dramatically for different real estate investors. It tends to vary due to the different and often limited resources that the real estate investor might have at their disposal at this stage of their evolutionary process.

In my case, my research was very basic, now that I take a look back upon it. For about a year, I spent time visiting the new development sites in my town. I would go into the sales offices at times, pick up floor plans for the homes as well as the price lists. I think I probably visited every new homes development in my town over the course of a year. There were a lot at that time. If I were guess, there were probably about 10 of these sales offices. I am sure that I visited some 2 or 3 times.

I would spend a lot of time also driving around in the new development sites and look at the new homes that had been constructed.

Some might consider these actions to be a waste of time. I would not disagree with those people. Waste of time, or not, the actions that I took were essential. They were essential because it allowed me to become more comfortable, it allowed me to learn more about new homes, and it gave me the confidence to move forward and take action when the time was right.

The biggest obstacle that I have seen hold so many people back from achieving what they want in life is Fear.

Fear has been hindering people’s desires for countless years. The nasty role it plays in destroying people’s dreams has been written about in countless books.

One of the most popular of these books is Think and Grow Rich by Napoleon Hill.

It has been my observation that an individual can defeat fear. It takes concentrated effort, and a high degree of awareness, however, it can be done.

Often times, fear holds people back from investing in real estate. I see people who are interested in investing in property, clearly understand the benefits of such an action, however, they get consumed with fear and they end up never taking any action.

This is important to note, as fear at some point will rear it’s ugly head and try to destroy your plans, no matter what they may be.

For those of you that are looking to purchase your first rental property, I have some advice as to how you can overcome the fear that you may be experiencing.

1) Identify what specifically you are afraid of

By doing this, it helps us to further understand how we can overcome our fear. You can identify your fear by simply sitting down and writing out a list of all of the things that you are not afraid of with respect to buying a rental property, and you can also write down all of the things that you are afraid of. Take a piece of paper and draw a vertical line down the middle of the page. On the left side list all of the things that you are not afraid of, and on the right side, list all of the things that you are afraid of. This essentially will be your pros and cons list of investing in real estate. Once you have identified your fears, you can take action to start overcoming them. Fear is often overcome by taking baby steps.

2) Take baby steps to overcome your fear

For example, your biggest fear about purchasing your first rental property may be that you are afraid that you will not be able to find tenants for your property, and that your property will sit vacant. Since you fear that your property will be vacant, you are afraid that you will have to pay the mortgage out of your own personal funds on this rental property, and the thought of this scares you.

This is a legitimate fear that a lot of new investors have. Here is how you combat this fear. You have to take small baby steps in order to overcome this. First, reach out and start making contact with other people that own rental properties. Ask them how they have found their tenants in the past. Ask them what challenges and problems they may have experienced in finding these tenants. Pick up tips and advice from these people as to what has worked for them in the past, and also what has not worked for them very well. Ask them what they did when their rental property was vacant, and the steps that they took in order to find another tenant.

Start to network and establish contact with Property Managers in your investment area. Ask these property managers the process that they take when they are trying to find tenants for a rental property. Also, when the tenants decide that they are going to move out of a rental property, also ask them what proactive steps they take in order to ensure that the rental property is rented out again quickly, and so that it is not vacant for a long period of time.

3) Stay in motion

It is one thing to take baby steps. However, it is equally important to make sure that you keep on ‘stepping’. By this, I mean, make sure that you are continually taking action to defeat your fear. Fear has a tendency of creeping up on us when we least expect it. Even if we have already taken some steps to help subdue our fears, if we stop taking these steps, such as the ‘baby steps’ talked about in the previous point, the fear can come back and fully consume us. I compare this to walking up a downwards moving escalator. Have you ever seen someone trying to walk or run up a downwards-moving escalator? I have seen this sometime in malls, and airports. In this example, the downwards-moving escalator represents our fear. We as individuals have to do our best to run up the escalator, and not stop running. When we reach the top of the escalator, we have defeated our fears. If we stop moving, and stand still, the escalator will take us all the way to the bottom. If we stop moving, we are letting our fears get the better of us. As such, our fear will consume us at this point. The long story short is that we have to always stay in motion. Never stop running up the fear escalator!

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3) Keep positive

While you are trying to combat your fear, only associate yourself with people that are encouraging you. Eliminate those people from your life that bring negativity. You do not need to be surrounded by people that will make you doubt yourself. Surround yourself with people that are going to support you, encourage you, and help you defeat your fear.

4) Repeat

Once you have overcome your fear, you have to take note of all the things that you did to achieve this. This is a noteworthy accomplishment so do not discount your achievement here. This however is not the end of your journey; rather it is only just the beginning. Fear never fully goes away, and it always seems to creep back into people’s lives. So if you know what you have done in the past to overcome certain fears, take note of that. Once the fear sneaks back into your life, repeat the steps that you initially took in order to overcome this fear again.

When you are investing in real estate, hopefully you will get to the point where you realize that you are running a business. Whether you own 1 investment property, or 100 investment properties, you are applying the same concepts, or should be at least.

Often times more experienced investors who own multiple properties realize through trial and error that they are running a business.

Beginning investors who take the time to learn from more experienced investors can be at an advantage. They will be at an advantage because they will learn to apply certain principles early in their real estate investment career.

All of the senior real estate investors that I associate with all have learned to run their real estate investments as a business. They all recommend that beginning investors should run their real estate investing as a business as well.

These experienced real estate investors that I speak of own a large number of properties. One of these investors owns 21 properties; the other one owns 50, while a few others own 100 and 200 respectively. Due to the number of properties that they each own their advice is extremely credible as they have the experience to show.

Here are some things that you can do so that you too can run your real estate investing like a business.

1) Be Decisive

The saying, ‘Time is Money’ holds true. You have to learn to make quick and decisive decisions. Once you have made your decision, stick to it. Don’t flip flop back and forth once you have made your decision.

For example, I have a rental property right now that is vacant. I received an offer from a prospective tenant to rent the property. The prospective tenant was supposed to return the signed lease to me, along with a deposit cheque, in order to rent the property. The lease and cheque was supposed to be returned to me 2 business days ago. Through communication today, the prospective tenant said that they are still interested in my property and that they are going to submit the documents to me. At this point I don’t care if they are still interested. They have lost their opportunity. I am not going to wait for them. I have cut them lose and have put the property back on the market. If they want to do business with me, they must meet my timelines. Be decisive and move on.

But wait…you might be asking…How do you be decisive? Good question. It comes with practice. The secret with being decisive I have found is that you have to think logically, not emotionally. When you think logically, making decisions is easy because everything is black and white. For example, I decided to cut this prospective tenant loose because the more time I spent waiting for their signed lease and deposit cheque, resulted in lost opportunity for myself. There could very well be other interested parties who want to rent my property. As such, I need to spend my time focusing on these people.

2) Make sure that the money coming in is greater than the money going out

I do not know of any business that has become successful in the long run by continually losing money month over month and year over year. It is easy to apply this same concept to real estate investing. Pay close attention to this next sentence.

Make sure that your expenses on your rental property are lower than your gross income for the property. If this is the case, then you are making money. This is a good thing. For example, if all of your monthly expenses on a property are $800, and your gross monthly income is $1000, then you have a $200 profit each month.

You do NOT want to be in a position where say for instance, your total monthly expenses are $1000, and your total monthly gross income is $800. This would mean that you have a $200 loss on your property each month. It is difficult to continue to grow a business when you are losing money. How do you make sure that the money coming in on a property is greater than the money going out, you may ask? For starters, you will have to know the market rents of your target property. By knowing the market rents, you will be able to accurately estimate what your actual rents will be. Also, before purchasing the investment property, you will have to do some pre-work in order to determine how much all of the expenses cost. For example, how much are your mortgage payments going to be? What about property taxes? Are there any condo fees to take into consideration? What about repairs and maintenance, how much will you allocate for that? Finally, are you going to hire a property manager, or will you manage the property yourself? These are all variables you have to take into consideration. After reviewing all of these variables, you will be able to accurately determine if the money coming in is greater than the money going out!

If you talk to any experienced real estate investor about their path to ’success’, chances are that they will share that their journey was not a smooth one.

At the end of the day, when you remove all of the B.S., real estate investment is not a walk in the park. It can be stressful at times, and many experienced investor reaches the point where they consider throwing in the towel, and giving up all together.

I have considered giving up once. It was at this time that I was considering selling all of the real estate assets and going back to school. Looking back, I am glad that I chose to stick with real estate investing because, this is really what I am interested in and what I like to do.

With investing, since the road is not always a smooth one, I have included some tips on how to stay motivated in the real estate investment game. These are all tips that I personally practice. As time goes on, I am sure that this list may very well expand. For now, here are some of the ways one can keep motivated, and thus continue to stay invested in real estate.

1) Surround Yourself with Like Minded People

There is no better way than to stay motivated. When you align yourself with people with common goals, this encourages you to stay the course with your own goals. Comparing notes with people with a similar vision makes you feel that you are not alone. Conversations with like minded people often help to recharge your batteries and give you enough energy to keep on moving forward.

This past Sunday I had a real estate meeting scheduled with some fellow real estate investors. I didn’t really feel like going as it was dark outside, and the weather has just changed as the winter is upon us here (December 2009). This was problematic for me as I am not a fan of the Winter or cold weather. Despite the outdoor climate, I knew that I had to go to the meeting. I know that if I did, I would feel better and more motivated after my meeting. As such, I bit the bullet and went to my meeting. I spent some time talking to investors who were using the same investment strategy that I currently am using (rent to own). After my conversation with them, I felt so much better, and I had increased confidence and reassurance that I was on the right track.

When you surround yourself with like minded people, they will charge your batteries. They will give you the energy you need in order to keep on moving forward.

2) Surround Yourself with Action Takers

Action takers and Like minded people are not one and the same. There is a big difference between the two. Like minded people may believe in the same things that you believe in. For example, that real estate investment is a good way to generate monthly cash flow. However, action takers are the ones who are not only talking about the benefits of monthly cash flow, however, they are implementing things and actually DOING something. They are the ones that are buying properties, and leading by example. Action Takers are powerful people to be associated with. Their actions rub off on you and force you yourself to take action.
A friend of mine is a big time action taker. This year he, and his joint venture partner have purchased 11 properties. He is an inspiration to be around because he has such positive energy. This positive energy is no doubt a result of his recent success with all of his purchases. As human beings we often compare ourselves to other people. Comparing yourself with an action taker is a good thing, because if they are taking action and you are not, you will want to take action as well, just like them.

3) Read as much as you can about real estate investment

The more you read about real estate investment, the smarter you will become on the topic. Being smart is important because smart people can find solutions for problems. As well, smart people can come up with creative ways of solving different problems. Not only that, but knowledge is power. The more you know the better.

For example, I was recently reading about a real estate investment strategy called RRSP second mortgages. It is an interesting strategy which allows a real estate investor to utilize RRSPs as a second mortgage on an investment property. With my initial reading, I had discovered that this strategy was only permitted as an Arms Length transaction, which means that the 2 individuals involved (Real estate investor and RRSP lender) cannot be blood related. This discovery posed some problems for me, as I was looking to implement this strategy with family members.
I was not content with my findings, so I continued to read further on this topic. After further reading, I came across some information that confirmed that the RRSP second mortgage strategy was in fact allowable between blood related people. This was a big breakthrough for me, as this discovery will potentially lead to 3 or 4 new investment properties in 2010.
If I did not continue to read more on this topic, I would not have found this solution. Reading about real estate investment is powerful because it allows you to gain more knowledge. Knowledge creates options.