A few weeks ago, Chris and I met up and started catching each other up on our families, investing, and goals. As we were talking, I realized that I’ve been putting into practice a lot of the things I’ve learned over the course of my real estate investing journey. So, I’ve compiled a list of the 9 lessons I’ve learned, as well as one thing I always plan for. Real estate investing isn’t easy, but it is simple, and these basic lessons will help make it even simpler.
- Listen to the podcast “#42: 9 Lessons Learned from Investing in Real Estate” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Lesson 1: Sewer Scope. Always Sewer Scope
My first lesson learned is a very actionable piece of advice for anyone who’s about to purchase a property. During the home inspection phase, sewer scopes are optional and some people skip out on the $100-200 cost. But spending hundreds upfront can save you tens of thousands in the future. Every month, we have a client who does a sewer scope and finds a big problem that either blows up the deal or is handled through the inspection resolution process. As someone who’s experienced the downside of not getting a sewer scope, trust me on this.
Lesson 2: Delayed Gratification Is a Must
A lot of people are attracted to real estate thinking they’ve found a way to exit their day job. There’s a lot of misunderstanding surrounding real estate: it’s not a get-rich-quick technique; it’s a grow-a-nice-amount-of-wealth-over-a long-period-of-time strategy. Delayed gratification is key to making this happen. If you grow to be a successful investor, you learn to see the forest for the trees. For example, if you own a rental property and are told the oven is broken, your immediate reaction could be to feel irritated that you are spending $500. However, an investor who takes the long view knows that in the grand scheme of things, that $500 isn’t going to make a lasting impact.
The key is to be patient and let the market do its thing; let the investment compound, and know that you’re slowly creating a large amount of wealth. If you go searching for immediate gratification in real estate, you’re not going to get it.
Lesson 3: Know Your Strengths. Know What Your Strengths Aren’t
When my husband and I first started investing locally, we tried to do everything ourselves. We painted, made repairs, and did landscaping. Then we realized that we aren’t that good at painting, repairs, or landscaping, and that the people who do those things for a living are really good at them. Instead of doing something that doesn’t look good and will need to be fixed later, we realized it made more sense to let go and allow the experts to handle it instead. While I can be a bit of a control freak when it comes to my rental properties, I realized I had to step back and give the professionals the freedom to do what they need.
Instead, it’s better to focus my time and energy on the things I am good at. My strengths lie in long term strategy and financing techniques, so that’s where I concentrate. The result is that everyone is doing the job they’re best at and my properties are better because of that.
Lesson 4: Get the Lender First and the Deal Second
Most investors would agree that lending is one of the more boring aspects of buying real estate. A lot of people think they need to get a good deal first, and then find a lender who can make it happen. But I’ve learned the hard way that securing lending ahead of time is key to ensuring a successful deal.
Four years ago, with one day to go before closing, I found out I wasn’t able to do the cash out refinance I’d planned on because the lender and I weren’t on the same page. I wasn’t aware of the concept of seasoning (the requirement of making payments for six months before pulling out cash) and paid for it. I had to do a rate-and-term refinance and then a cash out refinance a couple months later. In the end, I had cash stuck in a BRRRR property for longer than I wanted and had to eat two sets of refinancing costs. The real penalty was on me for not going about it the right way.
A lot of people see ads about low interest rates and only want to look at the cheapest closing costs and lowest rates. But the fact is, cheaper rates don’t matter if the lender can’t get the job done. Go for the most qualified professional, not the cheapest. And make sure you clearly communicate plans, ideas, and dates. Making assumptions that don’t work out will cost you.
Lesson 5: Always Trust Your Gut
While real estate investing is inherently analytical, it’s important to always trust your gut. Talk to other people who have more experience, but remember that at the end of the day, you have a personal goal for your life and finances and you’re the only one who knows what it is inside and out.
As time has gone on, I’ve learned to allow my gut to speak louder than my brain. For instance, it would make sense mathematically for me to trade up into larger and more complex properties, but I enjoy the properties that I own and they’re getting me to my goals. I know that keeping things as they are is the right plan for me, even if my spreadsheet says I have better options.
Lesson 6: Sometimes a Replacement Is Better than a Repair
There are times where it’s just easier to replace something than try to repair it. It’s counter to what we’re taught about being mindful of expenses, but sometimes it’s just not worth the time and money to try to fix something. Instead of having a repair person come out three times to look at a problem, coordinating with them and the tenant, paying for parts and labor, you could just spend some money to be done with it. I’ve had to go through this a few times before embracing it, but now it’s always on my mind when something breaks.
Lesson 7: There Is No Such Thing as a Perfect Real Estate Deal
This is a painful thing for a lot of people to hear because a perfect deal is exactly what they’re searching for. The truth is, there is always something that makes the deal or your property less than perfect because real estate is a series of tradeoffs vs price. Maybe your home is next door to a house that is in disrepair; maybe your property not in great condition and you’re taking on more risk. Something is always going to prevent your deal from being ideal.
I’ve never bought a property and thought it was a homerun on day one, but I’m extremely happy with every property that I own. People spend a lot of time trying to find the perfect property, perfect business plan, perfect partner and don’t end up with anything because perfect doesn’t exist. Remember that going for pretty good is better than nothing. This can be an especially hard leap to make, especially on the first couple of properties, but think of it as a mental hurdle to get over.
Lesson 8: It’s OK to Make Mistakes
I’ve made a lot of mistakes in my investing career, including some really embarrassing ones. But it’s all worked out because each mistake taught me something, and I know I’ll never make that same mistake again. I choose to see my mistakes as the cost of getting a hands-on education. In 10 or 20 years from now, minor mistakes aren’t going to make a difference.
Real estate is forgiving, especially long term real estate investing. You need to give yourself room to make mistakes, and know that you can hear something in in a podcast or read it in a book, but nothing really sinks in until you actually do it. So, make a mistake, accept it, and move on.
Lesson 9: When You Get Frustrated, Look at the 5 Year Projection
I stole this last lesson from our portfolio analysis expert Chelsea, who said it during one of our team meetings. It’s easy to get caught up in the details of a malfunctioning appliance or a leaky faucet today because that is what’s occupying space in your brain at the moment. But in 5 years, you’ll have equity growth, debt paydown, and better cashflow to offset those thoughts. Things that annoyed me a few years ago have no impact on my life today. When you’re having a bad day, take some time to think about what your life will be like in the future and what will matter to you then.
One Last Thing to Keep in Mind
My last piece of advice isn’t a lesson learned because it’s been my goal since I started investing in real estate. Always make sure you have adequate reserves. Luckily, I haven’t been burned by the absence of reserves before, but I know at any point a real estate disaster can strike. Anything can happen: high vacancy, big ticket repairs, even another pandemic. It’s a matter of when things happen, not if. What allows me to sleep at night is knowing that everything I worked through from lessons 1-9 is protected because I have the ability to cover any problems that arise.
What Are Your Real Estate Investing Lessons Learned?
Everyone has their own version of this list, so what is yours? We’d love to hear about the experiences and wisdom our clients and audience have gleaned through their own real estate investing. Reach out to us with your stories.