What’s the real estate golden rule? It’s a straightforward rule: treat others the way you would like to be treated yourself.
What if your clients knew that you could steer them in the right direction when their air conditioner goes on the blink, their roof springs a leak, or they are ready to make their new house a home? The ability to provide those kinds of resources is powerful. So if you really want to grow your base of business, move beyond your own wealth and your own networks, research and create a list of ten trusted service provider resources centred around the home that you can easily share with your customers.
Start out by thinking of all the professionals who can service and benefit the homeowner, their families, and all the other consumers you come into contact with each and every day. As you make your way through your real estate career, you’ll have an opportunity to come in contact with and even share referrals with a broad spectrum of business professionals. If you’re wise, you’ll create a robust list of these trusted people that you can then refer to your clients. Your referral list will not only include other real estate professionals, but also mortgage lenders, attorneys, landscapers, roofers, electricians, handymen, plumbers, painters, and the list goes on.
There is so much incredible synergy to be found in mutually beneficial relationships that they are well worth all of the time, effort, and energy you can put into them.
In other words, never ignore the value of your friends in the service industry and always continue to establish and build relationships with them. These contacts have a book of business that ranges anywhere from ten to potentially thousands of people, so imagine the possibilities if you start referring business to them and they do the same for you.
The real estate golden rule is to treat others with respect both in your business, as well as in your life, to be kind, professional and proactive. Start by reaching out to trusted contacts, and create referral relationships. When you reach, trusted service providers ask them to describe their ideal customer so that you can send appropriate referrals their way. Do the same for your customers who have a business that would benefit from your network.
The biggest goal in real estate investing is to stay in the green. The best way to do it is to make wise property choices and safe deals. Real estate is an industry where rules and strategies are tossed about a lot. Some of them are useful; others are nonsense. However, there really are a few core rules that can consistently deliver results. With these seven strategies in your toolbox, you will be able to make the right property choices, identify the safest investments, and meet or exceed your short and long-term investment goals.
Everybody knows the almost cliche golden Rule of property: Location, Location, Location. However, I believe this is overly simplistic and does not guarantee a successful outcome for property investing and long term wealth creation. These 3 rules may appear necessary, but if you follow them – I believe your success will be almost assured.
There are a lot of ‘rules’, strategies, and philosophies thrown around the real estate world. Some of them are helpful; others can be counterproductive. Then there is this set of core golden rules. If you can only pack seven in your bag; pick these. They’ll make sure you make the right decisions, and keep you safe, and on track to where you want to go year in and year out.
Matthew Riley is an attorney with Bona Law, primarily focused on antitrust, commercial litigation, real estate, and federal administrative law. Prior to joining Bona Law, Mr Riley’s legal practice emphasized transactional work involving real estate and mergers and acquisitions. Matthew’s professional passion is to educate and to clarify problematic areas of the law to help clients achieve their goals. Matthew Riley graduated from the University of Kansas School of Law in 2013 and is licensed to practice law in Illinois. He is in the process of obtaining his admission in California.
No one wants to pay taxes, and most, if given the option, would pay less. The Tax Code declares certain events taxable (ex. receiving wages, selling property), and establishes rules to assess how much a taxpayer owes on those events. In some cases, the Tax Code empowers taxpayers to choose which tax rules apply, and thereby, how much tax is owed. Therefore, knowing the tax rules and how they use certain taxable events can result in significant and beneficial tax consequences for you and your business.
By “Golden Rule” it means it is a rule investors can apply to accumulate wealth significantly faster than investors who do not follow the Rule.
A Like-Kind Exchange is an investment strategy whereby one property is sold and replaced by the acquisition of another of the same kind. In such an exchange, any taxes that otherwise would be charged to an investor’s capital gains on the relinquished or sold property, are deferred. The deferment of these taxes allows the investor to enhance their purchasing power in acquiring the replacement property. To illustrate the ramifications to an investor choosing to apply the Like-Kind Exchange rules, consider the following (fictional) scenario:
Ronald Lump is an investor who got a “steal-of-a deal”, paying $500,000 for an apartment building in an up-and-coming neighbourhood in San Diego. After holding onto the property for a couple of years and finding his property much appreciated from a neighbourhood renovation project, Ronald decides to cash out and purchase a bigger-and-better beachfront apartment complex in La Jolla. Ronald finds a buyer who purchases his apartment building for $1,000,000.
The Golden Rule
Whether we’re talking about a career in real estate or a career in any other industry, your reputation is all you have.
An excellent reputation is the single greatest attribute, characteristic, or asset any real estate professional can possess. Always go the extra mile, not only to be honest but to avoid any hint or appearance of impropriety.
Buy When Money Can Be Made
If you want to gamble, go to Vegas. If you’re going to be successful in real estate, don’t speculate. Regular property buyers buy because of emotion; investors do not. Speculation is tempting, but there is no reason to take unnecessary risks.
To make money when buying real estate, you need to be impartial when estimating possible returns. Err on the side of caution when calculating the likelihood a deal will produce. Good buying strategies are:
- Buying below value
- Purchasing properties that already have a stream of rental income
- Arranging an end buyer before closing a deal
Cash Flow is king
Whether it be investing in property, stocks, bonds, or even buying businesses: cash flow is king! I lived through the 1980s where Australia mortgage rates hit +15%, and I experienced my loved ones having their houses foreclosed because they did not have enough cash flow to cover interest repayments which were too burdensome. The property may have been the best house in the best street in one of the best suburbs in Australia, but that didn’t matter because there was a lack of positive cash flow. When modelling up every one of my prospective property investments, I pay particular attention to cash flows. And indeed, I always add enough buffers for margin of error as possible. This includes seeing if the property still has ample cash flow should; mortgage rates go up another two percentage points; vacancy rates hit +10%, and average monthly rental falls 10%. This may sound overly cautious, but I prefer to know that the property has enough cashflow buffer so I can sleep well at night. You never want to be a forced seller.
Do your homework (100-10-3-1 Rule):
For every 100 properties, your search, you will most probably like 10, put an offer for 3 and get one offer accepted. You must do your homework to know if you are buying a bargain or overpriced property. We didn’t do our homework when we bought the house in Perth.
Never Stop Learning
When you stop learning, you start losing. Leaders are lifelong learners. So are the best real estate investors, agents, and property managers. There is always more to learn about real estate, and trends and rules are always changing. Learn about different investment strategies, construction, property management, technology, marketing, appraisals, and mortgage lending. Make it a consistent part of your annual plan, monthly checklist, and weekly schedule.
When you don’t or won’t learn, you will lose. The key to being a leader is embracing lifelong learning. If you look at key players in the real estate market, you will see they are always learning and evolving their strategies accordingly. Doing so increases your longevity in the market.
There will always be more you can learn about real estate investing. The trends of the industry fluctuate regularly, Make keeping up to date with those trends part of your daily schedule, weekly achievement list, monthly goals, and yearly plan.
Have Long-Term Focus
When making choices about buying real estate or selling real estate, you should be driven by a long-term plan. Big plans are good, but understanding how they will play out over time is better. Almost anyone can make a few real estate deals, and it is even possible to bank significant profit early on. However, few people manage to stay the course long-term and build wealth successfully.
Time moves quickly. Back up your five-year plan with a ten-year plan, and have a clear picture of what 20 and 30 years will bring. If this sounds incredible, consider that the average homeowner has a 20 to a 30-year mortgage. How much more unreasonable is it for the average investor to be clear on their investment goals for a similar amount of time?
Always buy under market value from a motivated seller. Never buy at the peak when buyers are competing for every property.
Investing in income properties generates income, tax benefits, and equity as the unit appreciates through the years. Although profitable, being an investor can also take a lot of time managing and troubleshooting. Before investing, take some time to consider your personal commitments and schedule. Will you have the time to manage the real estate you now own? And if not, are you comfortable delegating management tasks to a property manager?
Winners don’t just think big, they think long. Anyone can get into real estate and do a few deals. Many can get in and make a million and build a small empire. Few manage to sustain and snowball that into long term wealth and billions in the bank. Be one of those by thinking long. Forget the five-year plan. Get a 100-year plan. If you are only thinking a few years ahead, you are dooming yourself to fall off a cliff after that. A 100-year plan creates massive wealth and a real legacy.
Know You Can’t Control Everything, But That’s Okay
It definitely pays to go for controlling positions in your markets and investments. Own a controlling vote, have influence and pull, and build loyalty. Get to know your market, numbers, and real estate cycles. But also know that you can’t control everything. The good news is that you can prepare for every scenario. And if you prepare well and keep learning, you can profit from the unexpected too. You can’t control the weather, but you can ensure you are the company still standing and operating in the heart of the hurricane. You can’t stop the market from rotating, but you can profit in all phases of the cycle.
Ake a deep breath, relax and accept you cannot control everything. However, you can still seek to control as much as you can. Aim big, seek to position yourself to have influence, a significant and controlling vote, and loyalty within your market. Familiarize yourself with the local real estate cycles and numbers. Prepare for whatever the market might cough up.
When you run into something that is not in your control, don’t panic. Instead, realize that the unexpected can still yield results that will benefit you. You may not be able to control Mother Nature, but you can have an action plan for weather and natural disasters. The market is going to do what it will, but you can have a strategy for how to capitalize on the changes as they come.
Those are the seven golden rules of real estate investing. If you are interested in more tips, guidance, and support to help you develop or grow your real estate business, we are here to help! One of our experienced coaches is available to speak with you about your vision, concerns, answer questions, and give you tools to aid in your success. Please contact us today for a no-cost 30-minute coaching session.
Demonstrate professionalism in all things at all times. Lead by example and strive to elevate those around you with your complete commitment to excellence. Real estate is often chaotic, fragmented, disjointed, poorly communicated, misunderstood, misinterpreted, dramatic, high stress and last-minute.
It is very easy to lose one’s composure and behave in a less than professional fashion. Always keep your composure. Always keep your cool. Always do your best to see the other side of every issue and situation.
Always protect your positive equity
This means that you should always be in a position where your assets minus your liabilities results in a positive balance. Never over-leverage yourself, no matter how great the property is or how good the location is or how much the property is a “once in a lifetime” opportunity. Things change, markets move, and you don’t ever want to be in a position of negative equity. Negative equity is death to many people financially. I know of several experienced property investors with well-diversified and high-quality portfolios who have come unstuck by over-leveraging. Typically, as a rule, I never let my Loan to Value Ratio (LVR) of my total portfolio go above 60-70%. And actually, I am more comfortable with an LVR closer to 50% LVR.
Property is something I love investing in. It has enabled me to achieve financial freedom at an early age. I am now lucky enough to pursue my own business, helping others invest in property and other asset classes. However, the property is just a spreadsheet of numbers to me rather than bricks and mortar. Whenever I purchase property, I try to remove all forms of emotional attachment. And purely focus on the numbers. I know several friends who have fallen head over heels for their dream property on the beachside of some exotic location, or ski resort, or palace in the best bragging rights suburb. But for me, the best property I have purchased has often been the ones that are the least attractive and most generic, yet have the best cash flow, capital growth prospects and financing structure. Take the emotion out of the equation; it’s all about the numbers!
The above rules have been tried and tested by many investors smarter and more successful than myself. These are golden rules of property which I strongly believe allows one to have the best risk-reward balance for successful property investing. Connect with me on LinkedIn if you would like to know more.