Earlier in my career I offered hundreds of well-attended live events on real estate investing and met thousands of everyday people trying to succeed in the business. The vast majority of them owned a handful of properties and were chipping away at building a portfolio, slowly, over time. But every now and then I’d meet an exception. A unicorn. Someone who’d only been at the game for, say, three years and already owned 25 or 30 properties. When I’d talk to these “fluke” successes, I’d discover they had something in common: they treated their real estate investing business as a business. Not as a side hustle.
By contrast, many people involved in real estate investing have a dabbler’s mindset. They don’t set clear goals for the future. They’re focused on cutting costs, saving money, avoiding risk, and protecting what they already own. Their priority is to keep their taxes, fees, and expenses low. Minimize spending, maximize income. Protect. Survive. Grow when possible.
A business mindset is different. A business owner—as opposed to a hobbyist—focuses on growth. They set ambitious—but attainable—goals for their business. They create a business plan, a strategy, a mission statement, an operations plan. They work at building a network of contractors, lenders, advisors, and service providers they can rely on. They hire employees to do some of their tasks, and they invest in technology, training, and office space.
Invest is the key word. Probably the main difference between a real estate investing pro and a perennial dabbler is that the former think in terms of investment rather than cost. They understand the old business saying, “You have to spend money to make money.” When presented with an opportunity to take an action that’s good for their business growth, they don’t say, “I can’t afford to do that,” they say, “I can’t afford not to.” They think long-term.
Dabblers have a short-term mentality. For example, I often get pushback from clients who wish to avoid the expense and “headache” of setting up multiple limited liability corporations (LLCs) for holding their real estate investments. Instead of investing in creating the legal structures that will allow them to go buy more real estate, they look at their wallet and say, “Nah, maybe next year.” Or perhaps they avoid taking out a HELOC on their home because they don’t want to have debt on their residence, not realizing this is “good debt,” which would give them some liquidity for purchasing more real estate and help them avoid high-rate hard money lenders. They fail to see the big picture.
I had a similar “small picture” attitude when I started out in real estate investing. Today I own over a hundred residential and commercial properties, but when I was starting out, I struggled to build momentum. That’s because I was focused almost entirely on asset protection and tax savings. I had all kinds of clever (and legal) strategies for reducing income on paper and getting my taxes as close to zero as possible. But then when I’d turn around and approach lenders to borrow money, those tax-saving strategies would bite me in the rear. The lenders thought I wasn’t making any money! So they didn’t want to give me the loans that were essential to buying more property and building my business. It was only when I began making decisions for the good of my whole business that my business began succeeding.
If you were opening a restaurant or a professional service, you would treat it as a business, and you would understand the need to invest in its long-term success. Why handle your real estate investing business any differently?