By Charles Bulthuis, CRE Broker and the President & Founder of Reformation Asset Management
There’s a quote from the Japanese Zen Priest, Shunryu Suzukui, that says, “In the beginner’s mind there are many possibilities, but in the expert’s mind there are few.” What this has to do with real estate investing, regardless of if you’re a seasoned buyer or just starting out, is this: you either read that quote and thought ‘good point,’ or ‘I’m way beyond the beginner level as an investor; next!’ But, what separates investors with long-term gains who make smart, inspired decisions, and those who lack curiosity and will thereby lack true fulfillment in their investments is the willingness to stay open the way a beginner might.
Undoubtedly, the range of experience with real estate investors is wide, but what often happens when someone gets further down the line with their expertise is that the basics become subsidiary to more advanced ways of thinking. This is fine! It’s only natural. However, the main mistake in this thinking is the belief that the basics somehow become less important or relevant. This applies for anything that requires a level of skill or knowledge acquired over time, but with investing in real estate, the consequences of forgetting the basics could mean the difference of a profitable venture, and a loss.
What investors just starting out and veteran investors have in common is that they could benefit from a course in the basics. The market is wildly different now than it’s been in the more recent past and everybody could stand to engage or at least refresh the basics.
Investments Aren’t Precious
A property doesn’t have to be just right in order for it to be a worthy investment. I’ve spoken more about this on my blog, but they’re just about as precious as a car. What that means is that with cars, we’re more amenable to accepting only getting about 80% of what we’re technically looking for, doing without some things, knowing that we can fulfill the remaining 20% of the dream-qualities on the next purchase, knowing that the next purchase will also likely bring about a wholly refreshed list of desired features. With home buying especially, there’s way more emotions involved in it than car buying, however, some points still stand. It’s easy to view your perspective home as the house you’ll one day grow old and die in. Now, that may be the case, but it’s unlikely. Knowing this won’t be your only home, that your life will continue to grow and evolve, and your home will likely need to respond to these lifestyle changes will keep you grounded and rational in your home buying decisions. There’s always room for improvements, which will likely add value to your home, and get you a ton of ROI when you eventually move. It’s a win/win!
Get A Team You Love
What the main difference is in having a team you love versus having a team you like,or a team you can tolerate will surely make the experience of investing more pleasant, but the consequences of prioritizing your mental wellbeing while in the process of investing in a major piece of real estate will likely result in long term financial gains. Since real estate and investment is so linked with money and finances, it’s easy to compartmentalize this process and put it in the same category with the rest of your financial portfolio, prioritizing a cut-throat nature and making due with someone you may not spend time with or trust outside of this relationship. But, a home isn’t your stock portfolio. If your real estate agent or mortgage broker doesn’t listen to your concerns, for example, and pushes their own agenda, it can erode this level of trust and force you into making quick decisions based out of a place of insecurity rather than feeling like, with any good team, that you’re both playing for the same winning outcome in mind. Referrals are likely corruptors keeping this relationship from thriving and keeping your investments limited; so, please ditch your cousin’s friend or that person who did so well for your brother in law and go find your own person who’s bespoke to what you’re looking for in a realtor.
Consolidate Your Debt
You’ll need an amount of savings set aside in order to put a downpayment on a house. You can increase this number by consolidating your debt. If this is a process you’re unfamiliar with or you don’t understand how this will benefit the balance in your savings account, it all boils down to interest. Diversified debt means diversified interest rates. Researching credit cards to consolidate your debt puts your monthly payment on one track with a consistent interest rate, which will hopefully be around the median percentage of all of your monthly payments. If possible, trim your debt where possible. It’s not unlike cleaning your home when you’re anticipating having company; tidy up your financial situation before you sign on to a 30 year mortgage.
Stay Interested In Interest
The steep rise in interest rates will be followed by a sharp pull back sometime in the next 24 months. With this said, this is just my opinion, and I could be wrong. But, if rates were to continue to rise, if you took a normal variable rate loan, you could be faced with a possible increase of up to 5% above your start rate as a cap. That is scary! Instead consider a buy down rate, or a 3/1 ARM where you can control the rate of the increase with more certainty. Interest rates will continue to fluctuate, increase, and illicit scary numbers over the next 24 months, but that should not be the main obstacle holding you back from buying real estate. Stay engaged, but not fearful. Keep your wits about you and act from a place of intelligence and knowledge that cycles and patterns in the market are natural, while not 100% predictable. Investment is a risk, after all.
Invest In Multi-Family Homes
Never underestimate the power of having a rental property. If you’re making your next purchase after living in a single family home, I encourage you to not view a multi-family home as a downgrade. Whether this is your first home or not, having a rental property is a great way to make your investment work for you. In addition to your property increasing in value over time, there is an opportunity with having renters for your home to potentially earn passive income, contributing to your free cash flow, and overall wealth generation.
Research Alternate Lines Of Credit
A mistake first time homebuyers and real estate veterans both make is becoming 100% reliant on their banks to be their mortgage providers, financers, and sole resource when looking for a home. Take a look at your life and where you’re looking to buy and you’ll likely find unique loan opportunities to help you purchase your new home. For example, if you’re looking to move to a small town, look up if it’s categorized as a rural area. If so, the USDA will give you a government backed loan to buy a home there. There’s also 1099 mortgages for gig workers and home loans specifically for health professionals. Every situation is different and the power of doing your own research will keep you in a better position with your financial health.
Run A Home Insurance Check With Every Property You Look At
This is part of keeping your brain grounded in reality while you’re embarking on the expensive and very emotional process of buying a home. Search engines like YoungAlfred will help you pull up insurance quotes as you go. Imagine finding your dream property, getting qualified for an incredible mortgage, and then being surprised and saddled with the world’s most extravagant homeowners insurance policy because it’s in a flood-zone with an old roof. You’re going to want to get a handle on your insurance number as it will likely become another monthly payment you’ll need to incorporate in your long term financial plans. All properties contain an element of risk and it’s important to incorporate that risk into actual numbers if and where you can.
Charles Bulthuis is a CRE Broker and the President & Founder of Reformation Asset Management. A Veteran, Certified Residential Specialist, Accredited Buyers Representative, and Honorary CCIM, Charles has spent the past 29 years refining his innovative insights in the investment and wealth management industry.
Due to his unique skill set and proven results, Charles has been chosen by an overwhelming number of investment buyers and sellers over the last 5 years and currently has 500 doors under management. RAM offers in-house brokerage services, property management, maintenance and landscaping, as well as remodeling and new construction on staff.
Charles’ insights have been featured in Business Insider, Authority Magazine, The Broker List, Top Agent Magazine, and LA Wire. He’s been a guest on podcasts such as: Agency for Agents, Building Passive Income & Wealth (Through Real Estate), and Real Estate Nerds.