Here are the qualities you really need.
Thick skin: I think the two biggest things that usually thwart a real estate investing career are stress and slander. These are, at least, my two biggest challenges. When I say slander, I really mean vilification. I want to be the good guy. I want to be fair. I want to be proud of what I do. However, in this business, you regularly run into conflict.
I recently had a situation with a contractor whom I hired to do a midsize drywall job. The short version of the story is the project went bad. After about two weeks into a one-week job, he was still not done, and he demanded to be paid more than double our contract amount. In essence, he unilaterally changed our fixed, firm contract into a time-and-materials contract.
The situation rapidly devolved to the point that I called the police to remove him from my property because he wouldn’t leave, and he was threatening to tear the drywall out. The officer showed up and treated me as if I was the villain, and the contractor delighted in informing me that the officer called me a pencil pusher.
For a week, the contractor called and texted constantly. He made serious physical threats toward me, my property and my property manager. He then changed tactics and told me he couldn’t feed his kid. Then he went back to physical threats.
In the end, I paid him another $500 to make him go away. It wasn’t right. I should have taken him to court and got my money back, because the work was really bad. But it was far easier, faster and cheaper to give him some money to go away. For nearly a week, the entire event weighed pretty heavy on my mind.
Strong stomach: Stress ends real estate careers fast. You’re going to have bad deals. Yes, the stress is often created by losing money — but not always. Still, the base cause is the stress, whether it’s from financial loss, conflict, slander or time constraints.
Financial losses will almost always be recouped if you stick with it. But can you sleep at night if you have a tenant who hasn’t paid rent in three months? What about if a contractor decimates your project, and you know you have to work for months to complete a project that will lose money?
I myself have had many sleepless nights. It took a long time for me to get to the point where I realize that you win some and you lose some. When a deal goes bad, you can’t just quit the job. You have to buckle down and work for free or a loss just to get that project off your back.
Knowledge: Notice that money is not on this list. You don’t need to have money to invest in real estate. You just need to know how to get money. Luckily, we live in a country where you can find money if you have the knowledge and can demonstrate a work ethic and competence. The key is to educate yourself.
If you don’t have money, then you need to be willing to work for free. If you’re not willing to work for nothing, then you’ll always work for scraps. The key thing you’ll need to learn about first is real estate valuation, real estate finance, marketing and private financing. You need to learn how to identify and quantify a good deal, contract that deal, capitalize that deal and manage that deal. You can get a good start by learning to identify good deals and setting up a marketing system to feed you good deals. Finding a good deal is harder than finding the money for a deal.
Don’t fool yourself. A dwelling is a complicated thing. It’s assembled by an army of specialists. It’s governed by fairly complicated laws, regulations and customs. If you’re just starting, then you have a lot of homework to do.
Time: Passive real estate investing is a myth. If you think you’re going to buy a property and all that’s required of you is to cash the checks each month, then you’ve been fooled. If you want that, you need to look for a real estate fund, which is not a bad idea. In fact, I strongly advise my wealthier readers to consider that approach.
You can make a very nice return without any of the legal risks and aggravation. The problem is you’ll probably need at least a $25,000 minimum and accredited investor status to buy into those funds. If you’re making $70 an hour at your trade, then concentrating on your current skill might be more profitable. Can you afford to be distracted from your job? When the basement in your rental property floods, it requires your immediate attention. It can’t wait until 5 p.m. or next weekend.
If you choose the active investor path, know that your property is your product. You’re going to get out of it what you put into it. It will require time and attention, and no one will be there to tell you what needs to be done and when to do it. You have to manage contractors or do work yourself. You have to address tenant issues, maintenance, inspections and bookkeeping on a regular basis, and your taxes just got more complicated. Some things can be outsourced, but not everything, and the outsourced tasks still need to be managed and overseen. No one cares about your money like you do.
Network: Your network is your net worth. Like I said, a home is way too complicated for any one person to know everything. The biggest value you can bring to your business is knowing whom to call for a given situation. You need to know the lawyer to call to structure the deal that falls in your lap. You need to know the person with the cash to finance the deal. You need to know a bunch of tradespeople to handle repairs and renovations. Networking takes a lot of work.
You’ll talk to nine shysters, exaggerators and blowhards before you find that one good human asset, but you have to take the time to meet people. If you’re not a sociable person, this business is going to be more challenging. I personally don’t like networking, and I’m a pretty gregarious individual. Still, I’d much rather go home at night than attend a networking event.
Determination and drive: You will have painful failures. You won’t get rich quickly. Most rentals yield $50 to $100 per home per month in spendable cash — if you’re lucky. The majority of your wealth is accumulated through appreciation and debt reduction. You’ll probably have to work for years for very little spendable money. Don’t think that real estate investing is a quick path out from under a manager. Real estate investments can be the most tyrannical and demanding overlords. Can you persevere through a bad situation? Will you want to?
Love of the game: In the end, if you don’t love it, you won’t stick with it. There have been many times that I thought to myself: Why do I do this? But I love the numbers. I love sitting down and making them work, finding a way. I love construction and the tangibility of a structure that I shine like new. I love the before-and-after pictures. I can’t fix people, but I can fix a home. To me, that’s like the next best thing.
Real estate is like anything else. If you have passion and drive, you can make a lot of money in this profession. It’s also a great place for those of us who didn’t come from money, who don’t even know anyone who has money. But, despite what the seminar gurus say, it’s not easy, and it’s far from risk-free.
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