As a real estate investor, you are probably always focused on the current deal you are working, working fast to complete a flip or get tenants into your new rental property. And probably, before that project is wrapped up, you are focused on looking for the next one. It’s a great plan, keep moving, keep growing, and wealth will come, right?
It IS a great plan. But, the successful real estate investor is also taking the time to use smart money management practices and tools, to maximize their financial clout.
The very first item on our list is using and sticking to a budget. In any flip or investment property, the budget is vital. Know going in approximately how much your rehab will cost. Of course, there needs to be some fluidity to the budget, but keep a record of expenses, and get granular about it. Not just $946 spent at Home Depot, but what was that for? How much went into bathroom upgrades and how much was spent on lighting? Keeping track of these numbers will help you become better at estimating costs upfront and will therefore make your future investments leaner and better. Learn where the surprises typically come in and be prepared for them. Learn where you may have overspent or underspent as you gauge the reaction of your potential buyers or renters, and adjust accordingly next time. And keep track of those “lost” expenses – the $30 spent on breakfast tacos for the crew to keep morale high should be noted down just as materials and labor should. Keep track of gasoline costs and the fresh flowers bought for your Open House. Sticking to a budget and constantly working to keep things lean will help you vastly in the long run.
Secondly, we recommend saving a percent of your profit. Yes, saving it, as in putting it into a retirement fund. As an independent full-time real estate investor, you probably do not have the benefit of a corporate 401k fund to contribute to. Many times, we find ourselves building wealth and living well with that wealth, but not planning sufficiently for the future. So suck it up, and put a piece of that profit into an IRA fund or other retirement plan, and continue contributing to it, every time you make a profit from one of your investments.
The third recommendation goes right back to the beginning. Make MORE money! How do you do that? As your real estate investing career evolves, you will develop a keener eye for the real money-making opportunities out there. If you’ve only done fix and flips, consider getting into a rental property. Once you’ve got that fix and flip routine down, buying into a couple properties that you can hold and have monthly income from can be a very smart move. And, vice-versa. If you have so far concentrated on rentals, why not try a couple of fix & flips, and build some up some fast cash reserves for future investments?
Our fourth wealth-building habit separates the folks that look wealthy and the ones who are wealthy. As tempting as it is to live large with the proceeds of your investments, keeping a simple lifestyle will help you save and invest as much as possible, and build real, long-term wealth. As tempting as it is to buy a flashy car and lots of glitter and bling, keep your feet on the ground. After all, remind yourself of why you wanted to get into the investment game in the first place. Was it to impress the neighbors and your friends or to create solid wealth?
All our suggestions up to now have focused on restraint and good planning. What about risk? Yes, accepting certain risks in your investments are necessary to get to the next level. There are very real risks with most investments, and the bigger the risk, the bigger the payoff – or the loss. Look at those risky deals with a hard eye, and accept the risks that are worth it. The risks you can afford. In other words, go into the risky deals with the knowledge that they can be more profitable than others, but accept that there will inevitably be some that don’t pan out. When you get to the level of real estate investing that you can do this without having a nervous breakdown over it, then you are playing at the pro level.
Lastly, as they say, the devil is in the details. Keep your personal budget just as clean as your investment budgets. Know how much you spend at the grocery store, on dining out, on clothing and vacations. Automate as many of your recurring costs, both personal and business, so that they are always paid on time. Be aware of subscriptions and services you are paying for that are flat out not getting used. That old credit monitoring service at $20/month that you don’t even look at any more, the $55 recurring fee for a business app that you stopped using over two years ago, the upgraded cable package with all the bells and whistles when these days your movies are streamed live, and the $16/month Audibles subscription on Amazon that you signed up for as a trial and forgot to turn off… these are all prime examples of flushing your money down the toilet. Clean up your budget and spending and keep a close eye on it always.
Follow these practices and you will join the ranks of the financially secure.