3 Habits of Highly Effective Real Estate Investors
Real estate investing requires a myriad of skills and strategies to make successful investments consistently. Investors who are successful in the long term practice some healthy habits to minimize risk and maximize return.
Robbie McEwan, a Senior Associate with Marcus & Millichap’s Orlando office, says the highly effective investors he works with have three habits in common:
- Begin with a strategic plan. Have a clear plan for the asset before you invest, and develop realistic expectations for the short- or long-term return you expect. Obtain counsel from trusted advisors to ensure you have an achievable plan. Investors operating on gut instinct or emotion frequently find themselves in trouble. “Strategic plans are different for each investor, property, submarket and market cycle timing,” says McEwan. For example, your plan might be to purchase a stable asset and maximize income and value through operational efficiencies with the intention of a 5-10 year hold. Another plan may be to purchase a physically distressed asset, make significant capital improvements to the property, stabilize the asset at newly achievable higher rents, and then exit at maximum value based on the improved asset and strong stabilized cash flow. McEwan counsels investors to clarify their strategy before acquisition.
- Know the market. “Take advantage of imperfections in the marketplace,” McEwan advises. Having more information than other investors about the market, the property, and the specific area can expose hidden opportunities or risks. For example, if you learn that a large employer plans to move close to an apartment complex that is for sale, you can take advantage of the upcoming increase in rental demand. As the market is always in a cycle, clarify where in the cycle you are for that property type and submarket. “You have to look into the past to see the future. It takes historical market knowledge to understand where you are in the market cycle,” adds McEwan.
- Leverage debt appropriately. There are tremendous opportunities to use debt as a commercial real estate investor, but bigger is not always better. Just because there is an opportunity for maximum leverage doesn’t make it the best decision. “A savvy investor is strategic in how he capitalizes on opportunities through leverage,” says McEwan. “This was something we discovered in the last market crash, so leverage appropriately.”
With brokers who know the market and a vast network of quality attorneys, CPAs, and lenders, Marcus & Millichap experts like McEwan help investors obtain the information they need to make wise decisions — and support their good habits.
[cta]Marcus & Millichap Real Estate Investment Services, together with Marcus & Millichap Capital Corporation, provides clients with the latest property markets and capital markets information to create the investment opportunities and loan packages that meet their financial objectives. To learn more, contact us by email or by phone at (407) 557-3800.[/cta]