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Five Must Have Characteristics for Successful Real Estate Investing
By Chris D. Clothier, Co-Owner of MemphisInvest.com
Pick up any two real estate investing books and chances are you will get slightly similar, yet still differing opinions on what steps an investor should take if they want to be successful. One of the benefits of having served on the boards of two different real estate investor associations and had inter-action with hundreds of investors, I can tell you that there is no definitive list of characteristics, no magic list of steps to take and there certainly are no "pillars" or "magic bullets" to use to achieve success.
What I can tell you is that the same characteristics that make anyone successful in their endeavors (investing or otherwise) also apply to real estate investors.
However, there are a few characteristics that seem to apply almost universally to real estate investors who have been able to find success. More importantly, when investors fail (for various reasons) they almost always were missing one of these characteristics. If someone wants to be successful in real estate investing these are 5 characteristics that all must exhibit on some level.
The 5 C's of Successful Real Estate Investing
1) Competence of Subject
It would seem to be a given that someone striving for success in any business or investment strategy would take the time to become competent in the inner workings before starting out. At a minimum, becoming competent in the basics would be a must. Joining a local association or group of real estate investors would be a great beginning followed by absorbing as much education material as possible. There are dozens of books on the real estate shelves at your local book store that would be a great place to start.
Become a sponge and take in as much information as you can to become competent in the specific terms, ideas and concepts of investing in real estate.
2) Control of Emotions
Have you ever heard the saying that "...in the end, Emotions control the day!" When you are investing in real estate, that can never be the case. You must be in control of your emotions with every decision you make as an investor. If you are investing with a strategy of fix-n-flip, you must never allow your emotions to influence a decision on whether to buy in a particular neighborhood, a particular property or settle for a price point higher than your cut off point. Never allow emotion to influence a decision such as lowering your monthly income desired because you really like the property. Developing solid financial goals and the path to them is a must for an investor and you can never allow emotion to enter your decisions and alter those goals.
3) Comprehension of Market
One of the dangers of becoming more competent on the strategies of real estate investing in general is the possibility that all the concepts you are reading about and learning may not apply to your particular market. This is where surrounding your self with like minded individuals and joining an investment group or association is so important. Follow those who have been successful in a particular market before you. Research your market, drive the neighborhoods you want to invest in and ask questions of those who are having success in your market. You absolutely must know how the investment strategy that you plan to employ interacts in your particular market. Comprehension of your market and developing a plan based on what works instead of what you want to do, will be a key to success.
4) Consistency of Action
This is an absolute killer for many beginning investors as well as investors who get a taste of success and strive for more, more, more. Early on as an investor, you must develop a strategy for investing. Are you going to buy and hold a property for long-term return or are you looking for a property that you can fix and flip. Your strategy can always be modified but not your basic actions for success. Most entrepreneurs will tell you that they achieved success by doing the basics consistently and developing the best habits early on. As an investor, whichever strategy you choose, there will always be actions and steps that you must do every day, every week or every month. Being consistent in your actions will be the single biggest obstacle you will face. Overcome it and success will almost surely follow.
5) Character
I would not think that this characteristic needs much explanation. There are always short cuts and there will always be someone, somewhere offering the "magic formula" for success. Do not buy! Do not take the easy road, do not take the short cuts. Stay true to your inner principles and always treat a business deal as well as all of your relationships the way you would like to be treated. If a particular deal looks too good to be true, walk away. There are no actions that you can take that can ever repair character damaged from within. The great thing about deciding to invest in real estate, is that there are always other opportunities waiting to be found. You do not have to sacrifice your character for any deal!
After having dealt with so many investors, those that have succeeded and those that have failed, I can tell you that this is a good starting point. Success comes to those who are willing to put the work in and be the best. At my company, I have dealt with investors on all levels and I can assure you, the investors who found the most success all exhibited these characteristics.
Chris Clothier of www.MemphisInvest.com is an experienced real estate investor who has purchased over 50 properties for his personal portfolio and assisted hundreds of investors with purchasing over 700 homes in the last 5 years.
Disclaimer: Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. It does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.
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Reasons Why You Should Buy Multifamily Properties
When you sit down and examine the advantage of owning multifamily properties, you will be amazed at the multitude of benefits. While other avenues of income generation offer some attractive incentives, owning multifamily properties brings many great things to the table. Let us explore these advantages:
1. You can outsource your property management to professionals. You don’t have to be bothered by tenants and toilets. Even if you have smaller properties, you can hire property managers. Leave the headaches to them and go on vacation! The property doesn’t own you; you own the property.
2. Apartments are made to cash flow even with nothing down. This means that instead of there being one house with one roof generating only one source of income, you have one roof with possibly multiple apartments under it creating multiple income streams. You have economy to scale. Apartments are designed to be income-producing properties.
3. Better leverage of your time and effort. Think about it. What would you rather do? Look for ten houses or a ten-unit apartment building? On the flip side, wouldn’t you rather sell a ten-unit apartment than sell ten houses? Of course! You have more leverage of your time.
4. The value of income properties is based on income. This is a function of Net Operating Income (NOI) and you can create value by raising the rents and cutting the expenses. This is a very predictable process. You can determine how much the property is worth based on how much you raise the rents.
5. Less competition. There are less people out doing multifamily deals than single family deals because they lack mindset and they lack specialized knowledge. They have limited themselves by the mindset that says they must graduate from single-family homes to multifamily properties.
6. There is less risk. With multiple tenants you have multiple revenue streams. If you lose one client, it’s not the end of your business. On the other hand, if you are relying on a house as your sole source of income and you lose that tenant, you are still pouring money into that house. There is mitigated risk through apartments.
7. Non-recourse financing. The more money you borrow, the easier it is to borrow. When you get to loans of two million dollars and above, it becomes non-recourse financing which means the asset is the sole security for the loan. No one is personally guaranteeing the loan.
8. Condo conversion. This has been very big in some parts of the country such as Denver and Tampa. As an example, you would take a fiveplex, convert it into condos, and then sell the individual units. It is a different strategy because you’re putting all your cash forward and then pulling out. It’s not a long-term hold strategy.
9. The sub prime lender bust. With sub prime mortgage lenders falling out of the market, there are people cannot qualify for home loans. These people have to live somewhere so the demand for rentals is skyrocketing.
As you can see, the advantages to owning multifamily properties are solid and sound. With so many venues to consider when trying to find something to generate passive income for yourself, you just can’t overlook the tremendous value created by multifamily properties.
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Real Estate in Your IRA? Yes You Can!
Harness the power of real estate in an IRA to make tax-free or tax-deferred profits for the rest of your life!
By Edwin Kelly, Director of New Business Development for Equity Trust Company
After completing a successful real estate transaction, do you ever wish a chunk of the profits didn’t have to go back to the IRS for taxes? Do you ever dream about how many more real estate deals you could do or how many more properties you could buy if profits weren’t split with the government because of taxes?
Well dream no more. Realizing tax-free or tax-deferred profits on real estate is a reality.
Government sponsored retirement plans such as IRAs and 401(k)s allow you to invest in almost anything (including real estate), not just stocks, bonds and mutual funds. And all the benefits those plans provide, tax-deductions and tax-free profits, apply to whatever investment you choose, including real estate.
The Power of Tax-Deferred and Tax-Free Profits
"The most powerful force on Earth is compounding interest." - Albert Einstein
One of an IRA's greatest features is that it allows Americans to enjoy the true power of tax-deferred compounding interest. Compound interest occurs when interest is earned on a principal sum along with any accumulated interest on that sum. In other words, you are earning interest not only on your original investment sum, but also on the interest earned from the original sum.
Compound interest can occur with any investment you make, but the "true" power of compounding interest is obtained when you make an investment in a tax-deferred environment, like an IRA.
By taking advantage of an IRA's tax-deferred status, you do not have to pay tax immediately on your earnings (like the sale of a property or rent collected). Thus, you are able to enjoy the power of compounding on ALL of your profit, not just what is left after taxes.
Now apply those benefits to your real estate or alternative asset investing. Tax-deferred profits on your real estate transactions allows greater flexibility to make more investments, or to just sit back and watch your real estate investment grow in value, without worrying about taxes.
Is This for Real?
Most investors don't know this opportunity exists because most IRA custodians do not offer truly self-directed IRAs that allow Americans to invest in real estate and other non-traditional investments.
Often, when you ask a custodian/trustee, "Can I invest in real estate with an IRA?" they will say, "I've never heard of that" or, "No, you can't do that." What they really mean is that you can't do this at their company because they only offer stocks, mutual funds, bonds, or CD products.
Only a truly self-directed IRA custodian like Equity Trust Company (www.trustetc.com) will allow you to invest in all forms of real estate or any other investments not prohibited by the Internal Revenue Service.
Is This Legal?
It sure is. Since 1974, Equity Trust Company and its affiliates have assisted clients in increasing their financial wealth by investing in a variety of opportunities from real estate and private placements to stocks and bonds in self-directed IRAs and small business retirement plans.
IRS Publication 590 (dealing with IRAs) states what investments are prohibited; these investments include artwork, stamps, rugs, antiques, and gems. All other investments, including stocks, bonds, mutual funds, real estate, mortgages, and private placements, are perfectly acceptable as long as IRS rules governing retirement plans are followed. (To view IRS Publication 590, please visit www.trustetc.com/equity-university/irs-pubs.html.)
Getting Started
“Is it hard to do?” is a common question about investing in real estate with a self-directed IRA. It is really simple and is very similar to the way you currently invest in real estate. The following five steps demonstrate how easy it is to invest in real estate, or just about anything else, with a self-directed IRA.
But, don’t delay in opening an account. Every day that passes is one less day your investment can benefit from the Earth’s most powerful force (at least according to Einstein), compounding interest.
For more information about self-directed IRA investing, the plans and services available to you, and how to get started, please contact Equity Trust Company via www.trustetc.com or by phone at 1-888-ETC-IRAS.
Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with legal, tax, and accounting professionals.
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