property

How to treat real estate investing like a business

Posted by neil on December 15, 2009
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When you are investing in real estate, hopefully you will get to the point where you realize that you are running a business. Whether you own 1 investment property, or 100 investment properties, you are applying the same concepts, or should be at least.

Often times more experienced investors who own multiple properties realize through trial and error that they are running a business.

Beginning investors who take the time to learn from more experienced investors can be at an advantage. They will be at an advantage because they will learn to apply certain principles early in their real estate investment career.

All of the senior real estate investors that I associate with all have learned to run their real estate investments as a business. They all recommend that beginning investors should run their real estate investing as a business as well.

These experienced real estate investors that I speak of own a large number of properties. One of these investors owns 21 properties; the other one owns 50, while a few others own 100 and 200 respectively. Due to the number of properties that they each own their advice is extremely credible as they have the experience to show.

Here are some things that you can do so that you too can run your real estate investing like a business.

1) Be Decisive

The saying, ‘Time is Money’ holds true. You have to learn to make quick and decisive decisions. Once you have made your decision, stick to it. Don’t flip flop back and forth once you have made your decision.

For example, I have a rental property right now that is vacant. I received an offer from a prospective tenant to rent the property. The prospective tenant was supposed to return the signed lease to me, along with a deposit cheque, in order to rent the property. The lease and cheque was supposed to be returned to me 2 business days ago. Through communication today, the prospective tenant said that they are still interested in my property and that they are going to submit the documents to me. At this point I don’t care if they are still interested. They have lost their opportunity. I am not going to wait for them. I have cut them lose and have put the property back on the market. If they want to do business with me, they must meet my timelines. Be decisive and move on.

But wait…you might be asking…How do you be decisive? Good question. It comes with practice. The secret with being decisive I have found is that you have to think logically, not emotionally. When you think logically, making decisions is easy because everything is black and white. For example, I decided to cut this prospective tenant loose because the more time I spent waiting for their signed lease and deposit cheque, resulted in lost opportunity for myself. There could very well be other interested parties who want to rent my property. As such, I need to spend my time focusing on these people.

2) Make sure that the money coming in is greater than the money going out

I do not know of any business that has become successful in the long run by continually losing money month over month and year over year. It is easy to apply this same concept to real estate investing. Pay close attention to this next sentence.

Make sure that your expenses on your rental property are lower than your gross income for the property. If this is the case, then you are making money. This is a good thing. For example, if all of your monthly expenses on a property are $800, and your gross monthly income is $1000, then you have a $200 profit each month.

You do NOT want to be in a position where say for instance, your total monthly expenses are $1000, and your total monthly gross income is $800. This would mean that you have a $200 loss on your property each month. It is difficult to continue to grow a business when you are losing money. How do you make sure that the money coming in on a property is greater than the money going out, you may ask? For starters, you will have to know the market rents of your target property. By knowing the market rents, you will be able to accurately estimate what your actual rents will be. Also, before purchasing the investment property, you will have to do some pre-work in order to determine how much all of the expenses cost. For example, how much are your mortgage payments going to be? What about property taxes? Are there any condo fees to take into consideration? What about repairs and maintenance, how much will you allocate for that? Finally, are you going to hire a property manager, or will you manage the property yourself? These are all variables you have to take into consideration. After reviewing all of these variables, you will be able to accurately determine if the money coming in is greater than the money going out!

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