The investor you look up to seems to have it all. He or she is doing multiple deals a month, they drive a nice car, and they brag about their success. That is, of course, until a leg in the foundation breaks and it all comes tumbling down. We have seen it over and over and I hate to say it, but I think I am about to witness it again. Part of this falls into one of my top ten mistakes, which is basically getting too cocky, but it really stems from a lack of a solid foundation. It takes all four legs of success to make it in any business:
Stay Financially Organized
Aside from lack of cash flow, this is the biggest reason businesses fail. I happen to know many business owners that could not tell me how much income their business is producing, or worse, IF their business is producing income. Without organization, specifically with your books and bank accounts, you will not know what areas of your business need to be improved or focused on. It is amazing how much information you can get from financial statements, and by reviewing and comparing them. You can see quickly what areas of your business are working and what is not. A great example of this is when I started Pine Financial Group. I was set up to broker private money, conventional money, and some bank money. I had three areas that I generated loan origination income from. We are told multiple streams of income are important, which is normally true, but in this case, conventional and bank lending was actually costing me money. I spent about 70% of my time on those transactions and it produced about 10% of my income. I realized this within 6 months of starting the company. With this information, I was able to make the decision to refer conventional and bank loans to people I trust so I could focus on the one area I was really good at. Although it was a little uncomfortable to give up two sources of income, my overall income more than doubled within a year.
Other things that will stand out to you from good organization include; accounts receivable issues, honest employees and partners, invoicing problems, expense accounts that could be negotiated or tweaked, other income opportunities, and timing of purchase and sale of assets. Good organization will also prevent problems with IRA administrators, provide legal protection by running your company correctly, or help avoid a problem with the IRS or your state. Without good records, one problem could force you out of business.
This is a challenging area of your foundation and many business owners struggle with it. I happen to really like numbers, so we handle all this in our office, but it is not uncommon, and in fact is probably a really good idea, to outsource this task to a bookkeeper or accountant.
This is a huge section. I have spent thousands of dollars on coaching and courses teaching this concept. A few books that I believe are must reads for any business are, Emyth Revisited and 4 Hour Workweek. Both focus on systems, which are the guts to a business that can scale and grow. For real estate investors, your systems should be focused on finding deals, making offers, and managing your projects and or your tenants. Some are obviously easier to set up than others. For example, you might consider hiring a manager to manage your tenants, in which case they already have the systems that you are tapping into. Deal finding is important and not taken seriously enough by novice investors. This is where you make your money, so a great deal of care needs to be spent here. You should also have systems that keep bringing in leads, even after you found a deal. A mistake I see is investors start working on a project and stop their deal finding momentum. If you have a system to find and process deals, you will be rich. Even if you don’t do all the deals, having that stream will create income for your business. As you grow you will constantly tweak your systems so that you can grow and become a better, more profitable investor.
Without any systems, this is a just a hobby and will not turn into a profitable venture.
Building the Team
I have written about the importance of your rolodex in the past and cannot stress this enough. A great example of this is when you have a problem with your rental property. Recently we had a 500 year storm that landed right on some of my properties and flooded them. My tenants were pissed and the properties needed attention right away. I had two properties flood and was able to make two phone calls and two problems were solved while many people were calling contractors right out of the phonebook. Not only did I save a bunch of money by knowing who to call, but I had my problem fixed right away, which made my tenants happy and allowed me to continue to spend time with my family with virtually no stress.
That is just one example, and I am sure it will relate to many of you, but there is much more to it than that. It is nice to have multiple vendors so you can price different things to save yourself money, or get different ideas on how to handle situations that come up. It is also a way to being in more deals and creates more revenue sources. There are several members to your team and it is not limited to the obvious attorneys, lenders, insurance etc. It is other business owners, advertisers, real estate professionals and more.
If you live in the Twin Cities or in Denver, you will get a chance to meet many people that could play an important role in your business success. Each year we do a round table meeting where you get to meet some of the powerful vendors that are on my team; the ones that I feel comfortable referring to you. You will get a chance to sit down with them and pick their brain on their specialty. We will have attorneys, lenders, insurance agents, title companies and more. This meeting has literally changed people’s lives. Click here to check out a quick video of an individual that attended one of these free meetings. I hope you will join us for one of our January Round Table Meetings.
This sounds so simple and probably does not even need mentioning, but I know some who struggle with this; especially when they are getting started, because getting deals done is so important. I want to stress that if you are honest with people, even killing deals occasionally, that karma comes around. I have always believed that if I do what I say and I return phone calls, I could grow a successful company. I would much rather over disclose and lose a deal than have someone upset with their experience with us. I stress this with everyone in our office and we all take pride in this. We will always tell you what you need to hear, and sometimes it is not what you expect or hope to hear. Occasionally, people take this personal and choose not to work with us, but most of our clients appreciate our direct and honest approach.
There is a lot more to this than just being honest with others though. Your biggest struggle is probably being honest with yourself. If you made a mistake or are currently making a mistake, you need to have the strength to admit it to yourself or you cannot fix it. Sometimes looking yourself in the mirror and telling yourself you are not doing something correctly or that there is a better way to do something can take your business to the next level.
I want to point out that I did not specifically mention your asset protection plan as part of your foundation. Many people will argue that I should include that. I think it is important, but it should not be a focus when you are getting started. Your focus needs to be a good foundation and cash flow. Once you have assets to protect, go ahead and shift some of your focus there.