5 Rules For Real Estate Investing

Hey, everybody. It’s Nick.

Let’s talk about five big rules that will lead you in the right path towards success. Just to be clear, these aren't the only rules. But, you will have more success following these rules than those who don't follow them.

(Or watch the video instead.)

We'll jump right into it.

1. Know Your ARV

"Your ARV, what is that?" Glad you asked. That’s your after repaired value of the home. Let's say you buy a property. The first question you should ask is this: after I fix it up, what can I sell it for on the market? Once you know your ARV, then you can work backwards for your other numbers. “Okay, if I could sell it for this much then I need this much in repairs, I want this much in profit, so here’s what I can pay for that property.”

You can’t pay for the property, find out what the repairs are and then hope to sell it for some magical number that’s not realistic. These properties are going to sell for what they’re worth, so you really need to know what that value’s going to be before you go into the deal. Whether you’re going to wholesale that deal, or rent that deal, or you’re going to flip that house. It doesn’t matter. It’s a hugely important number that you can base almost all of your other numbers off of.

So, know your ARV and know that you’re being honest with yourself (and others) about the ARV. Don’t be trying to make up how your house is going to be a thousand times better so you’re going to sell it for a hundred times the price of all these other comparable houses in the neighborhood. Know the honest ARV.

2. Don’t Be Emotional

Just don't, okay? It’s just a house. You don’t love this house, this isn’t your forever home, you’re not going to live there forever. You don’t have to get this house. If you don’t buy this house, you’ll find another house. There’ll be another house. Let me say that again. There will be another house.

Where people get into trouble with being emotional is they’ll get in a bidding war. “I’ve got to win! I’m going to beat this person and buy this house!” So they keep paying more, paying more. Well, if you pay $10,000 too much for a house, you didn’t win. You lost. Because you got off your numbers and you’ve already spent too much money.

You’re not emotional about getting the house and you’re not emotional about your contractors. They work for you, you pay them to go out and do a job.

It’s a business, run it like a business, and think about it like a business.

3. Pull The Trigger

Seriously, pull the trigger. When you find something and you know that this deal is good, you know that these numbers are right, you know your ARV and your plan... Pull the trigger. Don’t sit around and wait and talk to 15 other people who are going to give you reasons why you shouldn't buy it, or you’ve got to find ten people to justify the deal. Pull the trigger. If you know it’s right, pull the trigger. Because if not, someone else is going to come in and pull the trigger before you, and then you’ve lost out on that deal. I’m not saying don’t do your homework or don’t do your research. But I’m saying when you know, go. Make it happen. You gotta do it.

4. Watch The Money

“Oh, of course I’m going to watch the money!” I get it. But I'll still say it again: watch the money. One of the spots where people get hurt a lot is, they don’t control it, especially when they’re paying their contractors. You’ve got to set a fair pay schedule that you and your contractors agree upon, and that’s what you’re going to stick to. If certain work hasn’t been done and you’ve agreed to only pay them after certain work has been done, then that’s when you pay them. You’re not just paying them to show up, you’re paying them to get a job done, and you just stick to whatever schedule that you guys have both agreed upon. If you let go of all the money, you lose a lot of the leverage that you have to get somebody to come back and continue the job. You just protect yourself, and it’s fair for yourself, it’s fair to them. You’ve agreed upon it up front. Watch the money.

Also, when you’re watching the money, the second part is, watch your spends. I’ve seen people that continue to spend and spend. “Oh, I need to do this and this and this and this,” and they look back and now they've doubled their rehab budget. Well, once you’ve doubled your budget, since we already know our ARV, now there’s not any profit left in this deal. Watch your budget. You can’t do every single thing you want to do to the house to make it a million dollar house if it’s in a hundred thousand dollar neighborhood. You’ve got to keep an eye on your numbers, watch the money.

5. Create Win/Win Situations

You want to create a win-win situation no matter which way you’re doing it, because then you build relationships that you are going to continue to work with as you continue to grow your business. If you’re going to wholesale a property to an investor, you’re not going to trick him into paying too much for a property. You’re going to sell him a property where there’s still enough meat on the bone so he can do something with it and make a profit. That way, he’s going to come back to you and you guys can continue to do deal after deal after deal together in the future.

If you’re creating a rental property, you want to create a quality product, put it out at a fair price, so your tenant feels like they’re getting a fair deal. They’re more likely to take care of your property, and they’re more likely to pay you on time for the property, and then if there ever is a problem, you guys are going to be able to work it out because you both have treated each other fairly, you’re both creating a win-win situation across the board. When you make these win-win deals with people, yes, you build your network, but you also protect yourself. Because people are going to want to continue to work with you in the future.

I hope these help, I hope this makes sense. I hope these five rules are things that you can put into your business, and I hope to talk to you guys real soon.

–Nick

Disclaimer: This is for educational purposes only and is not a substitute for legal advice. Always consult your own legal entities.