The deeper you get into the world of real estate investing, the more you see it is about learning than money. The people who really understand how the game works are those who eventually win.
In this post, we look at some of the things that every real estate investor should learn in the first year of their career. The more you understand these founding principles, the more successful you’re likely to be long-term.
Mindset Matters
If you think that real estate investing is all about the numbers, think again. It’s mindset that really counts. You want to push through comfort zones and embrace failure as part of the experience.
Too many investors think that real estate investing is all about staring at spreadsheets and talking to mortgage brokers but, of course, it goes so much deeper than that. There’s a difference between understanding what to do in theory, and actually carrying it out in practice. But that’s what you learn on the job. You discover the joy of pushing through the challenges and becoming an investor on your own terms.
Financing Options Are Tricky
At the same time, you also learn during your first year that financing options can be really tricky. There are actually many more setups than you might think, quite different from conventional domestic mortgages.
Financing options are hard to understand because they don’t always take the same format. A lot of the time, you can struggle to compare them in the way you’d like.
For example, you could opt for private lenders, but then you have to accept specific terms. Banks are another option, but again, they have limits and early repayment fees to consider.
As you get into this world, you’ll discover financing options that work best for your budget and temperament. However, it’s much more of a personal decision than many people imagine. Investors are often surprised by just how varied the strategies feel, and how different they are in reality to what they seem like on paper.
Mentorship Accelerates Success
People in the real estate game also learn that mentorship accelerates success. People who have pros behind them to avoid mistakes and set goals are those who are more likely to succeed in the long-term.
The reason for this is that the pros help them to avoid making mistakes which lead to setbacks. People who don;t have this kind of experience behind them are much more likely to fall into traps and pitfalls. It’s almost impossible not to without the right support.
Mentors essentially make the learning curve shallower. It doesn’t mean it disappears entirely, but it is less of a stumbling block on the way to glory.
Negotiation Is An Art
The first year of real estate investing also forces people to learn that negotiation is an art, not a science. Because it deals with people, there are no guaranteed outcomes. Trying to follow a formula doesn’t always work the way you expect.
Negotiation is something that takes time, and has to be done with multiple stakeholders. The way it works best is if there’s a win-win outcome.
For example, let’s say you have a tenant who pays 5% under the going market rate, but they’ve never missed a payment in two years. That’s the sort of person you want to hang around. Therefore, it might be worth capping their rental to avoid void periods and all the hassle that comes with someone moving in who might not want to pay you.
You want to be as clear and as empathetic as possible during negotiations. Remove emotions where possible and just state what you want and be transparent. People will usually respond positively to this.
Tenants Are An Asset
On a related point, you also learn in the first year on the real estate treadmill that your tenants are the real asset. After all, they’re the people paying you rent (if you’re using a letting model). It doesn’t matter if they’re individuals, families, or business, they’re the people you need to keep your business afloat.
The trick here is to decide whether you want to self-manage during the first year, or use a management firm to do it for you. Unfortunately, there’s no easy solution here. Self-management means you’ll do more of the work yourself but eliminate management fees. Getting an agency to do it makes your income more passive but eats into your returns.
You Make Money On The Buy, Not The Sell
As experts like Chris Klug like to point out, real estate investors make money on the buy, not the sell. That’s because acquiring properties at a discount is the best way to make a quick buck. Undervalued assets are always the best option in any market, and especially in the real estate sector.
You can, of course, make money by paying the market price and waiting for appreciation to take place, but the returns are unlikely to be as high. Whereas buying a distressed asset gives you more runway and options.
Costs Are Always Higher Than You Think
An unfortunate reality of real estate investing you learn in the first year is that costs are always higher than you think they’ll be. Things like renovations and maintenance become more expensive the deeper you go into it.
Because of this, it’s always worth thinking about whether you can add value to increase rental incomes. Maintaining margins in an environment where your profits are being drained is challenging and something you’ll want to avoid long-term.
Networking Builds Your Foundation
Finally, you tend to learn in the first year of real estate that networking is what builds your foundation. Relationships really matter, whether that’s with contractors, investors, agents or anyone else in your circle.
The reason for this is that you need people you can rely on. Partnerships will often get you further, especially at the start when your individual resources are more limited. You can get advice, access to the best deals, and more.
So there you have it: some of the things you’ll learn in your first year as a real estate investor.