What is the difference between being good at something, and being great at something?
I’d like to take 5 minutes today and talk about what separates the “good” real estate investors from the great ones.
Let’s step back for a minute and look at this question: Why do we, as human beings, fail?
- We went in blind, with no plan, and drowned in the situation
- Something unexpected happened, and made the situation impossible
- Everything “almost” worked perfectly, but the end goal was not met
I’ve done all three of these in the past, and I’m sure I’ll do them in the future. Respectively:
- Every time I’ve tried to play devil’s advocate to my girlfriend’s rock solid argument,
- Every time I’ve lost my car keys and missed meetings, and
- Every time I’ve tried to make brownies.
How does this relate to real estate investing? Keep reading, or ask me here
1. Experienced real estate investors think about the future
We’ve all been around the track once or twice by now. Everyone talks about finding your “freedom number” of perfect units that will ensure your financial freedom. The message is simple: all you need to do is just go and buy a property and everything will change for the better!
If this were the case, everyone with money to burn would go out, buy ten properties, and move to the beach. Sometimes this plan works out for a naive investor. That investor is RARE. Life happens, your priorities change, or maybe you just get sick of having sand everywhere. Great investors spend time on the front end thinking about exit strategies, acquisition strategies, and the scalability of their business.
2. Experienced real estate investors plan for the unexpected
This is the “50% rule” in it’s most simple form. Experienced investors assume that they’re going to have some expenses, and should plan that things will be worse than they think.
The "truth" of real estate investing is in the never-ending curveballs. Whether it's leasing and client management or discovering new, code-violating treasures your inspection missed, there's always something that needs a good plan.
What separates the successful investors from the rest of the pack isn't following these "rules" though. It's understanding why they exist, and then figuring out what they can do to protect themselves during lean months when everything breaks (and trust me, those times are coming!).
3. Experienced real estate investors meet their goals
Every investor I’ve worked with has closed on deals, gone back and done the math, and realized they missed something and didn’t meet their minimum. Or broke even. Or are underwater in their recent “great deal.”
This is the power of pure adrenaline. Often I get so focused, so excited about a project I’m working or deals I’m analyzing that I will forget to eat. Or shower. Or change the lightbulb in my bedroom for months at a time. This goes way beyond "analysis paralysis" and dives deep into "I need a mental health month."
Good investors know how to temper some of this adrenaline. Great investors know that they can’t always see the whole picture even when it’s literally right in front of them. Instead, they focus on the most critical aspects of their deal, and let other, more qualified people handle the nit-picky stuff like mailing letters and recording receipts.
This isn’t planning for the unexpected. This is more like planning to focus on something more important instead.
So, how does bookkeeping solve these problems?
1. Think about tomorrow, today
Having a good bookkeeper forces you to have a plan, and a great bookkeeper supports that plan and gives you a snapshot of what the future could look like. A bookkeeper doesn’t make sense to an investor that’s blindly running around with no thoughts about the future. When a great investor and a great bookkeeper DO get together, that investor can leverage the information and foresight to make amazing deals.
2. Plan for the unexpected
A good bookkeeper will let you know when plans have failed. A great bookkeeper will actively be looking for weaknesses in your plan, and will make proactive suggestions to make your finances ironclad. This takes the stress off of the investor, who should be focusing on finding great deals, not stress-worrying as to whether or not the deals he already has are top performers.
3. Plan on doing what you do best, and nothing more
A good bookkeeper will expect you to play an integral part in your bookkeeping. A great bookkeeper will know that this doesn’t help your business grow, and that investors need to be out networking and closing in on new deals, not sweating over data entry. Instead, great bookkeepers will free you from the burden and monotony of data entry, only involving you when it's time to talk about how awesome your business is doing.
A great bookkeeper for real estate investors is one that understands their work and lifestyle needs, will deliver the books as expected, and acts as a business advisor with your best interests at heart.
Is it time for you to bring on a great bookkeeper?