"When Buying Rental Properties The Velocity of Money is Key!"
When buying rental properties there are some key principles to follow.
Money responds to SPEED.
This applies to everything, not only buying rental properties. But for the purpose of staying on topic, let's focus on real estate.
When you move quickly with your decisions and your investments money seems to find a way to move quickly into your pockets.
Sounds basic, but so many people don’t get it.
After working with many investors, some beginners and some experienced, I've noticed a common theme emerge from them.
Let me illustrate with an example loosely based on a true story.
The Tale of Two Investors Buying Rental Properties
Let’s take two investors who are looking at buying rental properties. Sally and Joe.
Sally is a beginner investor. She has never bought an investment before. She takes the time to get some education, finds a mentor and a system that is proven and then decides to act.
She buys a residential investment property even though she feels that she really doesn’t have all the answers to buying rental properties just yet.
But she’s surrounded herself by a good team of mentors (experienced investors, attorneys, accountants etc.) so she makes her move.
Joe is looking at buying rental properties as well and has started his search.
Joe learns that Sally has already made a purchase and lets her know that he would never move as fast as she did.
He finds a couple of great properties, does some analysis on the comparables in the area, drives around the neighbourhood, asks for family opinions and thinks of everything that could wrong.
Joe is also surrounded by a well-experienced team with a proven system but fails to leverage them.
Sally closes on her property and finds a few things that the home inspector missed and it kind of upsets her.
Rightly so, you don’t want your home inspector missing anything at all. But, she’s now in the game. No turning back.
She makes a few calls to her experienced team and they tell her to move forward. And she really has no choice. If she wants to succeed she needs to get her place rented.
She puts up a sign, runs an ad and gets out the property to rent it out. Within a few weeks, she has rented it out for higher than market rent and collected a down payment from the tenant (the subject of another article).
Her new confidence propels her to purchase a second investment property weeks after closing on the first one.
During this time, Joe has still not purchased anything. He continues to analyze the potential problems and stays stuck.
Specifically, he read of a type of analysis where you take the property taxes of homes in the area and compare them to recent purchase prices.
The couple of good homes he is looking at fall slightly outside of his desired ratios.
His experienced mentors advise him that the market is appreciating quickly in the area and is likely the cause of his ratios being off.
Based on their proven track record they suggest he move forward.
But Joe can't get his mind off of this property tax calculation and convinces himself that buying rental properties is not in his immediate future.
He fails to capitalize on the experience of his team and doesn't really even know the background of the calculation he is using. he just found it in a real estate investment book written years ago by someone half way across the country.
So here we have two people with similar education, similar financial backgrounds, the same mentors and they end up with two different results.
I’ve seen this happen time and time again.
The people who are making money put themselves into money making situations.
They put themselves into the flow of money.
In the example we used Sally was a novice but because she made a decision and then took some action she was forced to make things work.
She hit a hiccup on closing, but couldn’t stay focused on it...there was no time for that.
She was facing the possibility of having to make a mortgage payment from her own pocket. She had to take action, she had to handle the pressure and get moving.
The looming mortgage forced her to have her property rented out by a certain time.
This organized her into taking a series of small actions (placing an ad, ordering a sign for the front lawn, calling people back, meeting them at the property) that ended up with a positive result.
It’s only these types of real world deadlines and situations that get someone moving.
Read that again, it’s important.
Now I’m sure there is more than one of you saying to yourselves that in this example Joe was doing his research. He was being a sophisticated investor who does his homework before making a purchase.
And I agree. He was doing the right things by analyzing his purchase.
But I can tell you with 100% certainty...you do not make money by doing research.
You make money by taking action. Money responds to SPEED.
You need to do research and you need to surround yourself with a good team of mentors. But once have done that you don’t need to write a thesis on your decision before you act.
You’ll never get anywhere, I’ve been stuck in that place myself.
I once found a property that was a "no brainer" but because I hesitated on making the offer someone who made a decision locked it up for themselves.
When you put yourself in a place where you must act, the real world becomes your teacher, and that’s the best education you can get. If you can handle it, the possibilities are endless.
The faster you take action, the faster money will find a way into your pocket.
So, do your homework, find some mentors and then take some action.
And by the way, in the actual true story of these two investors, Sally has continued buying rental properties and is on her third.
Joe dropped out sight. Probably got bored from the slowness (is that a word?) of his actions.
Too many people lose the chance to reach their dreams because they move so slowly that they literally forget why they are buying rental properties to begin with.
Money follows SPEED. Start moving.
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