My husband and I are recovering emotional investors.
As you sit here reading this post you may be thinking, “ well, that’s not me. I don’t have that problem”.
Have you ever….
Read a real estate book and got excited about getting started…………
Gone to a seminar and felt anxious to find deals right away………
Made mistakes and worried about how to fix them………..
That was us.
We badly needed to make more money.
I was working a second job while my husband went to night school.
We lived paycheck to paycheck, ate peanut butter & jelly and I made my own clothes for work.
We got into real estate investing to change all that.
But we ended up with failure and debt.
I recently posted a success story post in the BiggerPockets community about our complete failure the first time we tried investing. A lot of people had questions about what we did wrong in the beginning Was it the credit card cash advances? Or the lack of experience? Not exactly.
Looking back, I can see that those were just symptoms. If we hadn’t been so excited to get started and felt anxious because it seemed everyone else was doing deals, we wouldn’t have made such dumb mistakes. Even after the mistakes, worry didn’t have to take over our thoughts.
Are you beginning to see how emotions can wreck your business? How do you get control? How did we?
Controlling Your Emotions
Want the secret to controlling your emotions? Start with a plan. Create an overall strategy and criteria for your business. Do not — again, do not look at properties until you have this. It’s your roadmap. Your “northstar”. Your real estate ambitions on display. When you do start looking, use a list of questions to evaluate if a property is right for your plan. Don’t stray from your pre-determined criteria for these questions. It’s too easy to get caught up in a scarcity mentality from a broker or excitement about initial numbers. Your plan and questions keep you on track.
Here’s 5 starting questions you can use before making any offers on multi-family properties:
- What is the seller’s motivation?
Why is the property for sale? One of the most profitable purchases we made was when the seller was not able to get refinancing on an adjustable mortgage. Conversely, if the seller bought the property, fixed it up, raised the rents and is now selling at a premium… we are not interested.
- Is it a beautiful day in the neighborhood?
Or City? Or State? There are some neighborhoods where as my husband says “the gun isn’t big enough” to feel safe. While these properties can have very attractive CAP rates, this type of property doesn’t align to our strategy.
- Who lives there?
How long have they been there? We look for long-term renters that take pride of ownership. If these type of tenants don’t exist in the property today, can we move them in at some point in the future?
- Will it make money?
How do the numbers look today? What can you improve? We are looking for opportunities to add value by increasing rents and decreasing expenses. Examples might be adding a stacked washer/dryer to each unit in order to increase rents. Or negotiating better pricing on landscaping & maintenance services.
- How does this property fit with where we are going?
How does this match your plans? Examples include, is the hold ratio what you are looking for? Or is the property type something you can manage? As an example, we currently invest in multifamily and hotels. Before moving into any other segment such as storage units or fix/flips we’d need to determine if allocating resources outside of our core strategy makes sense.
Now I want you to think about what would happen if you started with the plan first and a set of criteria before you make offers.
You wouldn’t make an offer just because the property is “hot” and getting multiple offers. You wouldn’t be trapped by CAP rates that sound too good and end up as someone else’s headache.
You wouldn’t hear about a new investment type on a podcast and change your strategy if it doesn’t align to your goals.
What do you think would happen.
I’m interested to hear from you! Let me know— what’s on your list of criteria?