The Real Thrill of Hunting for Investment Properties
When I was a beginner in real estate investing, my main focus was on finding a good deal as defined by my mentors whose coaching program I had just finished, having devoured the entire stack of concepts behind their financial growth philosophy. Thankfully, they taught me an approach that was heavily backed by decades of successful investment experience. Over the years of my own investing, I have found that the property-selection process offers vast opportunity for additional learning with each new undertaking. In this post, I’d like to share with you four mental barriers I made myself overcome right from the get-go in order to implement my coaches’ ideas successfully in the long term. With persistent self-discipline and experience, these mindset barriers eventually transformed into advantages over the course of five years.
1. The Challenge of Money Prioritization
If you truly wish to grow your wealth long term, you must learn proper financial prioritization. The smart wealthy buy assets first and lifestyle second. They abide by this rule every time they wish to purchase a new luxury item by first securing a cash-flowing asset that will then pay for their luxury. When I became immensely interested in financial growth and decided to build my own wealth primarily through real estate investments, I was a tenant myself. I had been a renter for fourteen years, in fact, and was getting kind of tired of it. Regardless, I vowed to myself that I’d first purchase at least one cash-flowing property before I indulged the temptation of purchasing my own home. Shortly after I asked myself the question, “How can I buy a real estate property with the little money I currently have saved?”, an even better question popped into my mind: “Can I have both and, if so, how?”
2. The Challenge of Risk Resistance
Yes, of course, there was a way of having a cash-flowing asset and my own home at the same time! It was called living next to my tenants by purchasing a duplex, triplex, or even a fourplex! This is the type of risk most people who aspire towards investing in real estate freak out about. Did I hope my tenants wouldn’t be as problematic as the ones described in most landlords’ horror stories? I sure did. Did I get my fair share of dealing with really-hard-to-love individuals while I was living at my first fourplex? You bet! It’s called a learning curve. And, as my luck always goes, I had generously inflicted a quadruple problem upon myself by purchasing a building with four apartments! That wasn’t entirely my fault, though. In all fairness, I did look at eighty or so residential multifamily properties for sale before I chose one at the most acceptable location, square footage, price, and financing I could find and negotiate at the time. Boy, were my mentors right about the first purchase and its management being the toughest!
3. The Challenge of Delayed Gratification
The hunt for great real estate deals is an art in itself. It’s easy to compromise your process and due diligence when your patience starts dwindling. What could cause impatience to sneak under your skin? For one thing, depending on what phase of a housing bubble you happen to be in while looking for your deal, you may quickly find out that locations that fit your present criteria on budget and property type keep moving further away with market prices relentlessly rising near you. Secondly, you may just as quickly realize that other investors can move really fast and beat you to the offer. Thirdly, as you go through your careful research, you will encounter properties that have been on the market longer than others and you must find out why this is the case. These properties often hold the best negotiation opportunities for those able to spot them. An opportunity isn’t really hiding, you see. It is often in plain sight, but the problem most people have is that it is Work who usually answers when they knock on Opportunity’s door, which makes them hide from more than one cash-flowing opportunity.
When you find properties with various repair/renovation issues, you get to learn to leverage your price offers against these issues and against the time these properties have been sitting for sale on Zillow, Realtor, or similar websites. You can do this through property inspection, professional contractor estimates, or both. Problem properties generally offer less buyer competition. I’ve had cases when I’d look at ten properties in a desired area and structure offers on three or four of them, each at a price significantly lower than the seller’s asking price due to important issues that these owners haven’t addressed. The fact that all these properties have already been on the market for four to six months helps me prove to their sellers that I am hardly a capricious buyer. While today’s technology inarguably makes it easier to “visit” 300 properties through websites like Zillow, understand that there’s still no substitute for looking at properties with your own eyes, because the online pictures are often enhanced in favor of the seller and, contrary to popular belief or my “absolute favorite” — conventional wisdom, they aren’t always worth a thousand words. Far from it!
4. The Challenge of Staying Detached
Being able to keep your distance while searching for investment properties is just as healthy an emotional skill as being able to distance yourself, if need be, from certain people in your life. While on a property hunt, you must maintain an objective perspective and be ready to walk away if a deal you are negotiating in good faith takes a turn for the worse. Fluctuations in integrity may cause surprising decisions to be made or inaccuracies to transpire on the seller’s end of the deal at any time during the negotiation process. With each next deal, you will become more adept at keeping your emotions in check as you come to realize how important this is in preventing the other side from using your lack of self-control as leverage against you.
I’ll give you a simple example. During one of my property hunts, I saw an excellent home that had just been beautifully remodeled and placed on the market the day prior to my seeing it. We were in a hot market and the price was so reasonable that I immediately had my agent contact the seller’s agent and offer asking price. I knew I’d have to put exactly two days of work into this house before offering it for rent. The seller’s agent quickly became suspicious and, upon finding out on her own that there was an identical property for sale on the same block at a significantly higher price (not all real estate agents do their homework beforehand, either), she started a bidding war for the home I had in mind. I offered a thousand dollars above asking price, but the seller still wasn’t happy. I walked. The rest of that week, I focused on four other properties for sale in the same area, none of which had been freshly remodeled. As I was getting ready to draft and email to my agent four different offers on the last day of that same week, each below asking price and with respective rationales, my agent called me, ecstatic: the owner of the house I originally wanted had, after all, accepted my second offer. As predicted, the touch-up work on the property took two full days after deal closing before listing it for rent on day two, and I had a signed rental lease agreement on day three. That experience taught me a valuable lesson: even if I found myself compelled to walk away from a desired investment, I was still perfectly able to spot a good deal, craft smart offers and, in the end, might as well get to purchase the very investment I wanted in the first place! Self-respect is everything in such situations, and showing emotional intelligence when necessary is an excellent way to build self-confidence.
There are, of course, many other challenges on the property-hunting learning curve, which is why it is a wise idea to hire a coach and learn from the experience of a successful real estate investor. It is an adults’ game in an adults’ world, with real financial risks that need prudent, responsible management to ensure you realize your potential for exponential financial growth as fully as possible!