3 Key Differences Between Struggling Real Estate Investors and Those Making Significant Traction

Struggle vs Traction

When I was first getting started in real estate investing, I struggled for several years without gaining significant traction.


We would do deals, and make some money, but it always seemed like the money was spent just as fast (or faster) than it came in.


Our natural instinct was to do more deals and to do bigger deals, because it seemed logical that if we could just do more of the same, eventually we will get ahead.


This is very similar to running on a treadmill at a slow pace, and thinking that if you just crank up the speed, eventually you will get way out ahead of it.  No matter how high you crank that speed and how fast you run, you somehow always stay in the same spot.


No matter how many deals we were doing, month over month, we just didn’t seem to ever make significant financial headway, and just like on a treadmill with ever increasing speed, you eventually get worn out.


Perhaps you are in this same position?


You are ambitious and hard working, but for some reason the harder you push the less progress you feel you are making.


This doesn’t just happen when exercising on a treadmill or in real estate investing, this phenomenon occurs in all aspects of life and I refer to it as living in the quicksand.


Eventually I realized the insanity of continuing to operate in an environment where the business was structured in a way that I could never put in enough hours to truly get ahead.


I had to stop focusing on applying more effort within the existing business, and totally change the structure itself.


I ripped off the band aid and very humbly started over from scratch.


I intentionally thought through every aspect of the way I structured my new business, and although I’ve still made lots of mistakes since then, I’ve managed to progressively gain financial traction ever since.


Since that time, I’ve noticed some trends amongst the real estate investing community.  There are quite a few investors who look good, but are stuck in the quicksand, one bad deal away from bankruptcy.


While on the other hand, there are many very successful investors (many flying under the radar), with a business structure that lends itself to increased financial traction on a continual basis.


There are no magic shortcut to success and all rules of thumb have some outliers, but here are the top three practices that I have observed amongst those actually experiencing success compared to those who look good and talk a lot about investing, but aren’t getting the results they would like financially.

1. Recurring Cash Flow


After flipping over 80 properties myself, I lovingly assimilate being a house flipper to being a crack addict.

Crack addict vs Real Estate Investor

Finding a great new deal gets a house flipper really excited.  He then does the deal and gets a great feeling the day it sells (hopefully making a little money after you pay all your expenses and taxes).  Then, he is right back out there looking for the next score… I mean deal.


Don’t get me wrong, flipping can be a great way to make some great side cash, I still do the occasional flip when I find that diamond in the rough property.


However, when you set up your business to rely on flips as your sole revenue source, you are in a position of “having” to do deals, rather than taking on an awesome deal here or there as extra income.


The first scenario leads to a lot more work/stress for a lot less return, while the second gives you the freedom to cherry pick the deals that are the most profitable and enjoyable.


The most successful investors I know don’t rely on flipping solely, but have monthly growing recurring revenue as their main source of income.


Similar to other businesses, there is a lot of work up front, raising money, buying assets, rehabbing, repositioning, marketing, stabilizing, etc.


These are all activities that take quite a bit of time and effort with very little immediate payoff, but are done with the long term outlook of organizing something that will continue to kickoff income at an increasing rate, forever, with little effort going forward.


This takes a shift in mindset, away from getting rich quickly, in favor of a long-term sustainable wealth building approach one asset at a time.

2. Very Minimal Overhead


From the time you wake up each day, to the time you go to sleep, there is a certain cost of just existing.


Even if you just sat and stared at the wall all day, there is a cost that is incurred with each passing minute.


For instance, your monthly mortgage is accruing, the cost of the food you eat that day, the utilities you used, insurance, gasoline for your car if you go somewhere.


There is a cost to all of this, and it is drastically higher for some people than others.


Consumer debt, luxuries, and impulse spending are big drivers of a high daily cost of living.


Many people know what their monthly expenses are.  Just take this number and divide it by 30 to find out what it costs you every day you live.


Understanding this daily cost of living whether you are productive or not starts to make you organize your life with more daily income sources than expense sources.  It helps you know how much you need to make each day in order to outpace the expenses.


Business expenses can be calculated the same way.


Interestingly, once you start to think through this new lense you will think about purchases much differently.  Before you sign that new office lease for $3,000 per month, you will realize that you have to now make an extra $100 per day every single day, just to get back to even.


If you don’t work the weekends or holidays, then you better make a lot more than that because the lease isn’t taking those days off.


Then you start to add on all the other costs associated with your business (debt payments being a big one) and realize that every day you wake up, you are starting at a huge deficit.


The person with a high daily cost of living needs to be earning an incredible amount of revenue, just to get back to being broke $0.  Only then can you start to think about profit, after you have worked really hard to get back to even.


Sounds like lots of fun doesn’t it?


I know this because I have fallen into that trap.  One overhead expense by itself doesn’t sound like much money, but they can pile up fast, and you can drown quickly.


I would much rather focus on having virtually no overhead as long as humanly possible and start each day even, knowing that each dollar I make is positive revenue and profit.  It’s a great feeling.


The most successful investors I know are the millionaires next door that make their money before they spend it, spend their money on necessities, and have gotten overhead (daily cost of living) cut down to the barebones.


3. Next Level Clarity


A year ago I couldn’t log into Facebook without seeing ads for getting rich with Bitcoin and couldn’t go to a party without a friend telling me how I needed to transition from real estate and focus on Bitcoin since everyone was making money in it.


Fast forward a year to today and there is not one Bitcoin ad on my Facebook feed and none of my friends ever bring it up anymore.


The price of one bit coin at the time of writing this in December 2018 is $3,904.  Exactly one year ago it was $16,665.


If I would have listened to all the hype about the shiny penny (or in this case shiny digital coin) and transitioned away from my real estate business and invested in Bitcoin instead, I would have lost 75% of everything I had from last year to this year.


But instead, I intentionally ignored the hype.


I stayed focused on a tried and true (admittedly less sexy) strategy I had outlined years ago to buy cash flowing real estate, and during the time from last year to now I added a few new properties to the portfolio, each with lots of equity and lots of recurring monthly cash flow.


I can’t name any successful person that I know who built true wealth quickly, but I know many that have done it over several years by becoming crystal clear on their strategy to accumulate assets that provide recurring monthly cash flow and ever increasing equity with each new deal, year in and year out.


Feeling like you are missing out on something that is making “everyone” rich is a real thing. Don’t fall victim to jumping from one thing to another without gaining much traction, it feels a lot like operating in quicksand.

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1 Comment

  1. Ahmed on March 14, 2019 at 1:31 pm

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