10 Rules for Investing in Real Estate Without Looking Like an Idiot
Sometimes I do stupid things.
I can't blame it on anyone else... it's just me. Sometimes I'm just an idiot.
- I say the wrong thing at the wrong time and look foolish.
- I buy something awesome and expensive... and never use it (cough... my iPad.)
- I forget to call my family on their birthday.
Dumb, I know.
However, most of these things are fairly mild compared to the idiotic things I've done as a real estate investor. The following list may seem like I'm poking fun at others but, in reality, this is a reflection on the idiotic things I've done in my investing career.
But I want better for you.
I don't want you to look like an idiot. I want you to succeed and live the life you've always dreamed, so allow me to share with you my best tips for investing in real estate without looking like an idiot.
1.) Do Your Homework
One of the best ways to look like an idiot when investing in real estate is to jump in before you know what you are doing. You saw it on TV, you read it in a blog post, and suddenly you think you are the next Donald Trump and... well, you end up looking like Rosanne Singing the National Anthem.
It's not pretty.
So take the time to learn your craft, do your homework, read the books, listen to the Podcasts, and get yourself some good 'ol fashioned American edu-ma-cation! (just... try to avoid the $9997 course... you don't need it.)
2.) Know Your Niche (and Strategy)
When getting your education, it's overwhelming.
There are a lot of niches (like single family houses, multifamily, commercial) and a lot of strategies (like flipping, wholesaling, landlording) that you could learn about... and you'll probably want to.
This is a major struggle for those who love the BiggerPockets Podcast. Every week there is a new, exciting niche or strategy to explore. However, trying to do everything is going to make you end up looking like an idiot when you get stuck trying to learn everything, do everything, and wind up going no where.
Instead, focus on one niche as long as you can. Master it, then expand.
3.) Don't Invest in Something You Don't Understand
Want to know who isn't an idiot?
Yep, THE Warren Buffett. Like, "most-successful-investor-in-a-billion-years Warren Buffett." What made him so successful? Well, if you were to ask him, here's what he'd say... (because, he said this:)
"Never invest in a business you can't understand."
I think he's right, and this ties nicely into #2. Don't invest in something you don't understand. Instead... go understand it first, then worry about investing in it.
4.) When in Doubt, Partner Up
Let me ask you a very simple math question.
Now... wait, come back... I promise, it will be easy. Just settle down, champ. Just answer the following question:
A.) Getting half of a great deal or
Hopefully you answered "half of a great deal." It's the obvious answer, yet so many wannabe investors choose option B. They think "I can do this all by myself." Yes, you probably could. No, you probably won't.
My good friend Ben Leybovich is working to syndicate an apartment deal right now. Ben's a smart dude ... one of the smartest I know. However, when he decided to jump into 100+ unit apartment complex syndication, he didn't do it alone. He aligned himself with one of the other smartest dudes I know, who is an expert on syndicating apartments. Yeah, he'll be splitting the deal, making less than if he were to do it alone. However, he's going to syndicate a 100+ unit property while the rest of us are playing Pokémon on our Game Boys. Sorry... 90′s flashback. I mean Angry Birds on our iPads.
So if you want to avoid getting egg all over your face, partner up with someone who knows what they are doing. You can do all the hard work, they can bring the expertise, and together you'll find incredible success.
5.) Don't Over-Extend Yourself
Here's a fun way to look like an idiot: losing everything you've worked so hard for.
If you buy more than you can afford, more than you can manage, more than you can handle in an economic downturn ... chances are you'll end up looking like an idiot when your house of cards comes crashing down.
Keep your ambitions in check and don't bite off more than you can chew.
6.) Don't Act Bigger Than You Are
Here's a fun one. We all know that guy... he walks into the forums and says "I've got bulk deals in all 50 states and I've been investing for 12 minutes."
Yeah, right. And my Prius runs on the music of Michael Bolton.
Whether you are just starting out or have been investing for years... be real.
Admit to what you know and what you don't know. Then go back to step one, get educated, and become the bigger person you want to be. But until then, keep your ego in check and avoid looking foolish.
7.) Listen to Those More Experienced Than You
This is not a new game.
People have been investing in real estate for thousands of years, and even more importantly- very little has changed in the past 100. So to avoid looking like an idiot, don't dismiss the advice of those who have been investing for years. They've seen both the ups and the downs in the market, and can see the real estate history like a hot air balloon over a parade while you see it from the street: one float at a time.
8.) Don't Spend Before You Earn
Yes, you are going to be successful someday.
I believe it, really.
However, don't start spending your money like the Jersey Shore
idiots kids on spring break when you are trying to build your business. The reward should come later, but in the beginning, you are going to need all the capital you can get. So keep living below your means, save your money, and build something great for your future.
9.) Don't Fudge the Math
It's very tempting to tweak the numbers to make it work.
- "Oh... I think these units could actually rent for $900 a month, even though the exact same units are renting for $700 across the street. They don't have this cute purple trim!"
- "I think we can sell this house in 30 days, so it's okay to spend the extra $5,000 on those countertops! They are just so stylish!"
- "Well... the comps only justify a resale value of $120,000... but let's say $130,000 because it's going to be just so adorable!"
That's fudging the math. It's stupid, it's dangerous, and it's going to make you look like an idiot in front of your partners, investors, spouse, or lender when it all comes crashing down. Stick with conservative math. Err on the side of caution. Run your numbers through the BiggerPockets Property Analysis Calculators and make sure you are accounting for all the expenses.
10.) Know Your Why
Finally, to avoid looking like an idiot, always know your why. Keep the main thing the main thing. Don't get so wrapped up in the business of real estate investing that you forget why you are choosing to live this life.
For example, I am investing in real estate so I can make enough passive income that I can spend unlimited time with my family and future children. I don't do it to get rich, to buy nice cars, to see my bank account climb. I do it for my family. So... if I'm ignoring my family while trying to build my business, I'm sacrificing the very goal I'm trying to reach. That's me, being an idiot.
Know your why. Don't be an idiot.
No one wants to look like an idiot, but at times - we all do. It can't be helped. You will forget birthdays, you will buy stuff you don't need, you will say the wrong thing at the wrong time.
Luckily, you have the BiggerPockets community to help you avoid those idiotic moments in your real estate investing life. With over 180,000 members, there is nothing you will go through that thousands of others have not been through. So stick close, continue to learn, and continue to help others avoid looking like an idiot as well.
Finally, I would look like a bit of an idiot if this post didn't have some incredible comments below! (It's called social proof, baby, and it's the diamond rings on this blog post.) So, if you would, help me out and let me know which number above resonated the most with you, or share one that I may have missed. Also, of course, clicking that friendly Facebook Like button below would make my day as well!
This article 10 Rules for Investing in Real Estate Without Looking Like an Idiot originally appeared on the BiggerPockets Blog and is Copyright 2014 BiggerPockets, Inc.
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