Real estate is about asset and
cashflow management. Put more simply, it’s about managing what you have. The
right purchase exchanges your resources, in the form of cash, into a property,
contract, tax lien, note or some other real estate asset. Once you have
obtained a property, decisions have to be made regarding its repair, management
and sale, if that is your plan. No matter where you are in the
process—purchasing, managing, or selling, discipline is key.
One of the most controllable aspects of our lives is our behavior. How we act and respond to the world shapes our present and our future. Our ability to act in a way that brings about our desired outcomes is uniquely ours and belongs to no one else. In that way, discipline is our superpower.
Discipline is also of the utmost
importance in real estate, because there are always opportunity costs in the
form of other properties to buy and alternative ways to manage. When confronting
these opportunity costs, knowing which actions are the best for your budget and
goals will yield dividends. On the residential side, this can look like
tracking the rental comps for properties similar to yours and avoiding the urge
to over develop your property with upgrades or over charging your renters
because “you put in the work.” It can also mean choosing the tenant with the
better credit and rental history over the tenant who is offering more rent. In
the world of commercial real estate, discipline can mean not overburdening your
property with billboards, antennae and other property improvements, simply
because they bring you more money or rejecting a potential paying tenant
because their business competes with one of your current tenants.
Discipline also applies to those
who are entering the real estate market, as well. Preparing to enter into the real
estate market is also all about asset management. Saving for a downpayment is
the first asset allocation that you will make in the real estate world.
Managing your personal budget toward the goal of purchasing a property is as much
about learning fiscal discipline as it is about personal discipline. The skills
learned while saving for your first downpayment are invaluable and lost on many
who take the “get rich quick” approach to building wealth in real estate.
There is a certain level of
accomplishment that comes from saving and raising your own downpayment that
cannot be replicated. Everyone loves a great savings story and if you haven’t
had the pleasure of reading one, you can find a few here. The Cheapskates
Club is a great blog on personal saving and budgeting. That said, setting and
meeting a savings goal builds the muscle of self-discipline necessary to follow
the asset targeting and business goals that you will eventually set as a
property owner. The best part about saving is that it puts you in the role of
an executive today. You are the CFO of your own personal budget and how you
manage it reflects on the type of leader you are. Once you have used your own
self-discipline to begin your real estate journey, others will look to you to
help them.
I encourage you establish savings
goals, if you really want to move forward in real estate. The rule of thumb is
that between 10
- 20% of your income should be saved, with 5% of that amount used for short-term
goals, such as a down payment on a property. Getting into the habit of
saving, however, may take some time, as does any change. I therefore invite you
to research and find a savings plan that works for you. There are number of
downpayment assistance programs that can help first-time homebuyers and you
should take advantage of them, if you apply. That said, think of these programs
as assistance and take lead of your savings journey.
Take this opportunity to see
yourself as truly beginning your journey into real estate by practicing the
skills necessary for every investment property owner through saving. Hit those
savings targets and show the world that you are the next real estate boss.
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