As real estate investors, we look back and all have regrets. I draw upon my own experience of investing here in the Dallas market for more than 10 years, and as I look back at my business, in retrospect there are definitely things I regret. My mistakes include things I did and also things I didn’t do.
And you know hindsight is 20/20. That’s why I encourage the new investor to explore, meet and interact with existing investors who are out there doing it today. Maybe you can avoid doing some of the things that caused us regret by learning from tenured investors instead of learning the hard way.
I sit with other investors and colleagues in Dallas, and we often talk about our businesses. We trade ideas, talk about what’s going well, or not going well, things we’re proud of or not so proud of, how things didn’t go as planned, things we shouldn’t have done or things we should have done differently. These all fall into the buckets of regrets. There are different approaches to avoiding some of the regret.
Talk to Experienced Investors
If you are a new investor the key is taking time to talk, listen and learn from experienced investors who are out there doing full-time residential real estate investing. They can provide a lot of insights for the part-time, weekend or prospective investor.
A new or part-time investor can learn a lot from the real estate investors who are out there today doing it full time and at a high-volume level. Specifically, they can learn from the regrets of those who are several years into their career or building their investment business.
Start Sooner Rather Than Later
Many investors lament, “I wish I could have started sooner.” Just like so many things in life we wish we had started sooner so we could be enjoying the benefits now.
Exercise is a fine example of this for so many of us. We know we need to exercise; we know we should exercise. But we keep putting it off because the immediate benefit just isn’t there.
It usually takes months of daily exercise to start seeing results. And for that reason, many don’t ever start. And your real estate portfolio is the same way. Buying just one rental property will not get you financial freedom.
It’s hard to buy the first one and even the second or third one. But in time you will accumulate enough where you can truly feel the benefit and see the progress toward financial freedom from your monthly cash flow.
The key is to start now with your rental properties. Buy the first one and keep going—just like you’ve got to go to the gym on the first day and go day after day to get the desired results.
Wishing You Had More
“I’m an investor and I’ve made the first step. I’ve already bought my first five properties, but boy, I regret the fact I don’t have more.” Typically, this thought is because you either started too late or you’re moving too slowly in building your rental portfolio.
It’s a common regret: “I wish I had more rental properties.” It’s a very slow build or a very slow drift building a rental portfolio. You’ve got to buy the right houses in the right neighborhoods so you can attract the right residents. Not every house is a good rental house. And so it takes time to find those properties to purchase, to rehab and ultimately get good residents to generate cash flow.
It’s like the pilot light on your hot water heater: It’s a small flame, but you must keep the flame going to keep hot water in your house. It does no good to turn the flame all the way up; it’s not going to help anything and it’s not going to give you more hot water.
Similarly, in building your rental portfolio, you must keep the small flame lit always. You must keep looking for rental properties and buy them continuously over time.
Just as it’s ineffective to turn the flame higher on your hot water heater, you shouldn’t buy 10 rental properties at the same time. Why? Most of us don’t have that kind of capital, and even experienced real estate investors can’t find that many properties at one time.
It’s a very slow burn. Just like that pilot light, you’ve got to keep that going; you’ve got to keep your eye on your goal. You can never stop buying those rental properties or you won’t ever get to where you want to be. Then you’ll have the common regret of, “I wish I had more.”
Resist the Temptation of the Quick Buck
And finally, so many investors are challenged—or maybe a better word is tempted—when it comes to building their rental portfolio. They come across great single-family homes. They do their due diligence by looking at that house and realize, “I could fix-and-flip this house or perhaps wholesale this house. I could make $10,000, $20,000 or even $30,000 perhaps within the next few weeks.” That’s very tempting, very interesting and very compelling.
The tradeoff is, the same house could perhaps generate $300, $400 or $500 a month in cash flow for perpetuity. But when you stack up $400 or $500 against, $10,000, $20,000 or $30,000 the temptation to go for the quick money or larger amount is very significant. And an undisciplined real estate investor who is trying to build a portfolio can be easily enticed or enamored by the “shiny object” of a quick flip and a $10,000, $20,000 or $30,000 profit tomorrow versus a $300, $400 or $500 monthly cash flow over the course of several years.
The challenge with a rental portfolio is that there is a slow drift in terms of returns. You’re investing for monthly cash flow; you don’t get to tell the stories of the big profits the $20,000 or $30,000 check you cashed on a fix-and-flip or a wholesale deal. You are talking instead of terms of hundreds of dollars generated monthly after you’ve collected the rent and paid all the bills.
The obvious benefit is equity build as your residents pay down your mortgages every month and you capture equity. You also have the benefit of appreciation as you’re holding these properties long-term. They continue to increase in value, especially as we’ve seen recently across the U.S. with residential real estate. For this reason, many investors have that regret of taking too many fix-and-flips or wholesales and didn’t keep them as buy-and-hold properties.
The point is, stick with your real estate investing goals and keep the pilot light burning slowly. Mostly, keep those as buy-and-hold properties. Begin with the end in mind and never lose sight of the end goal so that you don’t have those same regrets.
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About the Author
Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies, which focus on residential real estate wholesaling, rental property management and self-storage leasing. He also is a licensed real estate agent in the state of Texas. He enjoys sharing his ongoing personal experiences, perspectives and learnings from his start as a part-time or “weekend investor” and full-time corporate professional through his ultimate transition to a full-time real estate investor and business owner. You can listen to his podcasts at http://www.blogtalkradio.com/kevinguz.