Saturday, April 29, 2023

Discipline and the Down Payment: Using Your Superpower To Get Paid!

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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