What separates average real estate investors from successful real estate investors? It’s not just a matter of resources. An investor with substantial capital can struggle to turn a profit while another investor with less to invest becomes a millionaire through real estate.
The difference is in small investing habits that add up to big returns over time. Here are the top 10 habits of successful real estate investors.
1. Buying Right
As we’ve discussed in prior articles, there is no wrong time to buy real estate. Since real estate always appreciates over the long term, it’s possible to build a successful real estate portfolio even if some of your assets are bought during peak seller’s market conditions when prices are higher than normal. In that case, you just need to hold the assets long enough to see the values increase further.
Having said that, there is still a right way to buy. Finding off-market properties you can purchase below market value, for example, gives you more bang for your investment dollar. Similarly, buying a distressed property and renovating it (like the traditional fix-and-flipping model) allows you to add instant value, which can immediately increase your equity in the property.
2. Building and Maintaining Relationships
Having a network of contacts is crucial for real estate investors, particularly those who leverage their industry connections to find off-market deals or find buyers and renters for their existing properties.
In addition to your “sphere” (your network of friends, family, colleagues, and other acquaintances), you should actively seek out industry professionals you can rely on as you build your investment business. These professionals include:
● Real estate agents,
● Mortgage lenders,
● Local permit office workers,
● Property managers, and
● Tax accountants.
3. Making Data-Based Decisions
Successful real estate investors typically don’t get emotionally attached to their investment properties. Buying an investment property is very different from buying your own home. When shopping for your private residence, your emotional connection to the property matters because this is where you will be spending years of your life and making your memories. But your investment properties’ primary purpose is to provide financial security and growth.
This is why successful real estate investors use data from the most important metrics for real estate investingto guide their decisions.
4. Using Tech Solutions Effectively
Another habit of successful real estate investors is to leverage technology. “PropTech” (property technology) includes useful solutions for real estate investors like
- Publicly available property databases. Sites like Zillow and Redfin make information on individual properties available to the public. You can use these sites to search for new properties and view sales information on comparable properties to help you choose the right offer price on your new acquisition or asking price for a property you’re listing for sale.
- Private property databases. Other sites provide premium property data in exchange for a subscription fee. Foreclosure.com, for example, can help you find properties in distress that you might be able to purchase for less than market value.
- Remote Online Notary Services (RON). RON allows you to have your signatures notarized virtually via video conference. This allows you to close on properties even when you can physically be available (like if you’re investing in property out-of-state).
- Automated access systems. Smart home tools allow you to provide access to residents without being physically present (or available at all, for that matter). This is especially useful for short-term vacation rentals. No need to meet your guests at the property every time someone new checks in. Your software can change the code between guests and automatically text guests the individualized code for their check-in.
- Online investment platforms. Today, there are multiple ways to invest in real estate without buying property. Through online platforms, you can purchase shares in a real estate investment, saving yourself the hassles of traditional property ownership and earning passive income from real estate.
5. Keeping Current
Understanding real estate market trends is one of the key habits of successful real estate investors. It’s important to stay educated on changes in landlord/tenant laws, as well as changes in renter and buyer preferences. And then you need to act on this information. This could be as simple as updating your units to meet the changing expectations of today’s renters. Or it could mean finding creative solutions to changing renter demand.
Take co-living solutions for example. Innovative developers are building new multi-family properties specifically to accommodate the co-living rental culture in high-priced markets like Los Angeles. By building larger units with three to five similar-sized bedrooms, each with its own bathroom, investors can create practical housing for the many renters who want to use multiple roommates to subsidize the cost of housing.
6. Adapting to Changing Market Conditions
It’s one thing for renter and buyer preferences to shift; it’s another thing for market conditions to swing (like when we shift from a buyer’s market to a seller’s market, or vice versa.
Take the pandemic-era buying frenzy and subsequent market correction as an example. Interest rates were at historic lows in the early days of the pandemic, so investors were able to scoop up properties on favorable loan terms. But then rates increased, and smart investors shifted their strategies accordingly. Rather than buying long-term rental properties with low fixed interest rates, investors in 2023 may be focusing more on home flips with ADU (accessory dwelling unit) additions. Unlike traditional flips, which may be risky in markets where values are declining, flips with ADU additions add substantial value by creating a separate rental unit, which dramatically increases the demand and the sales price for the property.
Be ready to change your strategy to capitalize on current market conditions.
Successful real estate investors know it’s better to hold varied assets than rely on a single asset to produce consistently over time. This is why investors split their real estate investment capital among:
- Different property types, maybe holding some commercial properties in addition to their residential properties,
- Different asset classes, perhaps having direct ownership over some properties and fractional ownership in others, and
- Different regions, maybe investing locally, while also allocating some of their funds for the fastest-growing markets.
Diversifying ensures that the portfolio can weather an unexpected decline in value on any single asset.
8. Expanding into Non-Traditional Investments
Traditional investments yield average returns. Alternative investments, like real estate-based securities, hard money loans, and tax liens give you a chance to outperform typical rates of return.
Alternative real estate investments may have greater risks involved than traditional investments. But understanding the risk and offsetting it with higher reward potential can make these non-traditional investments worthwhile.
9. Maintaining a Strong Reputation
You should be running your real estate investing business in an ethical manner simply because it’s the right thing to do. But it’s also an important factor in building and maintaining a good reputation. If you want to continue building a network of business partners to support you, you need to show them that your business is worth supporting.
Always work legally, honestly, ethically, and with integrity. And take some time to give back, as well. Going out of your way to support others in your community will earn you additional goodwill in your market.
10. Having an Exit Strategy
Knowing when to sell real estate investments is nearly as important as buying right. Even before you enter an investment, plan your exit. Will you flip immediately upon completion of renovations or hold the property as a long-term rental? Will you absorb the capital gains tax expense or defer the taxes with a 1031 exchange? Plan early for a smart exit.
Invest for Success with Gatsby Investment
If you’re still building your good investor habits, partnering with an investment company that’s already practicing the 10 habits of successful real estate investors will give you an edge.
Gatsby Investment has a proven track record of providing exceptional returns for investors by following the habits listed in this article.
Gatsby’s real estate crowdfunding platform allows you to easily select the investment projects that interest you. With low minimum investment amounts, a wide range of investment opportunities, and professional management every step of the way, Gatsby is a smart choice for both new and experienced investors looking for passive returns.
Learn more about Gatsby and automatically implement all 10 habits of successful real estate investors today!