A lot of people I know complain about not having enough money to do the things they want.
They are looking for ways to increase their income, but aren’t sure how to do this.
At the same time, some people are sitting around with a decent chunk of money and are looking to invest it. With the stock market hovering around all-time highs, there is serious risk of a downturn in the near future. (Should you be hoping for the stock market to drop?)
ENTER REAL ESTATE INVESTING
I’ve been a big advocate of real estate investing for a while. You can read some of my past articles by clicking here.
Now, having gone through the process of owning and managing several multi-family rental properties, I thought I’d write a piece about some of the lessons I’ve learned.
So, in today’s post, we’re going to discuss the 7 lessons I’ve learned investing in real estate, and how you can increase your chances of success!
Lesson #1 – It’s Not As “Passive” As Some Would Have You Think.
Yes, real estate is put into the “passive” income category by a lot of individuals, including myself (How To Create Passive Income And Stop Working). It can be, but it certainly isn’t always that way.
If you aren’t using a property manager, there is a lot of work to be done. You have to collect rent, answer tenant calls, manage contractors to fix things, deal with bookkeeping, file taxes, and on and on.
This doesn’t change my stance on how great real estate can be for building wealth, but you need to go into it understanding what to expect.
Lesson #2 – Separate Your Emotions From The Business
People can be difficult to deal with.
As you go through the process of managing your properties (and your tenants), you need to be clear that your real estate investments are a business, not a charity.
We all hope for the “dream tenant” that pays their rent on time, never calls with issues, and is a delight to the other tenants. But this won’t always be the case.
There will inevitably be the case of the “my rent check must have gotten lost in the mail.”
The main point is you need to have rules set in place to protect yourself, and you need to stick to those rules.
If you have a fee for late rent, stick to it and make sure you do the same for everyone.
If you don’t, you are likely to hurt your family’s and your financial future.
Lesson #3 – Expect The Unexpected
You can do all of the planning you want, but there will certainly be things that come up that you didn’t expect.
This past winter was brutally cold. At one point, I said to my brother that I wish there was something we could do preemptively to avoid burst water pipes.
Sure enough, not two weeks later we got a call from one of our tenants that there was a leak.
One of the pipes that had been built close to the exterior wall, with little to no insulation, had frozen and burst, causing a leak. We had hundreds of dollars in plumbing and maintenance costs.
Lesson #4 – Save Your Cash Reserves
The reason our pipe bursting story wasn’t that big of a deal for us was that we had large cash reserves in the business account.
Our mentality has been to leave every dollar of profit in the account so we could build up an emergency fund and be ready for any issues.
It isn’t fun having to write a check for an unexpected expense, but it makes it a whole lot easier when you’re doing it out of the business account, instead of having to pull money from your personal savings.
Lesson #5 – Partner With Someone You Trust
This can be said about most things – But if you’re going to partner with someone, do it with an individual you can trust. Not just because they aren’t going to scam you, but also because you know they are going to get their fair-share of the work accomplished.
If you are into a deal with someone, and then they stop doing their side of the work, you’re still at risk of a bad investment. This forces you to pick up the slack, or face the negative repercussions.
I’ve been working with my brother, and lucky that we’re both on the same page, so it’s been great. I’ve heard nightmare stories about failed partnerships.
Lesson #6 – Income From Multiple Sources Is Awesome!
Having income from more than one source not only increases your overall income, but it makes you more resilient against shocks. If you were to get laid off at work, you’d still have some income coming in from elsewhere.
This fact helps you become more equipped to deal with the bad times (economic recession, downsizing at work, cuts to work hours, etc), and it will help you build wealth faster during the good times.
Lesson #7 – Learning By Doing Is Better Than Studying
There is a difference between learning something through research and learning something through practice.
People who ask me about real estate investing will often ask what books they should read. I have a list that I recommend, you can check them out here! But after having actually gone through it (and still going through it), I can certainly say that you will learn much faster by actually doing.
I recommend doing some homework and educating yourself to a base level. But don’t get caught up in paralysis by analysis. You need to execute if you’re going to make any true progress.
Closing (On Your First Property 😉 )
So, after over a year of investing in real estate, I can safely say that it’s been a fruitful endeavor. We’ve made money, gained additional experience and knowledge, and are just getting started.
If you’ve been on the fence about getting into the real estate game, maybe now’s the time to take your first step into this new world.
If you do it right, the grass is definitely greener on this side! 🙂