Treat Real Estate Like A Business, Not A Hobby

One of the major turning points in my father’s real estate business was when he read a book that made it clear that real estate investment needed to be treated like a business and not a hobby. Before then, he had been signing leases at his own house and treating tenants almost like friends. Even though he was just getting started, he made the decision to treat real estate like a business and remove the wishy washiness that comes from an unstructured approach.

So he started signing leases at the Wendy’s across the street, which became his de facto office. He stopped listening to sob stories from tenants and put in place a policy to deal with late payments. And so on and so forth. All of a sudden, life became a whole lot simpler as:

1) The line between personal and business was made firm and

2) There were policies to fall back on instead of constantly having to make gut decisions.

The first point is critical simply to keep one’s sanity. One tenant can drive a landlord up the wall if that landlord keeps giving them chances. I’ve heard of many property managers burning out, often for this reason. One can only beg a tenant to pay rent so many times before beginning to daydream about a different profession or investment vehicle. And the same can go for wholesalers and flippers with contractors, vendors, agents and just about everyone else.

The second point is just as important. It’s a lot easier to tell someone no when you can point to a policy then just to say no because you’re a meanie-head. This is because these requests are often small things that don’t matter that much by themselves. So you come of as (and perhaps feel) cruel to say no with no reason. Well instead of no reason, that policy can be the reason. In addition, as Roy Baumeister and John Tierney showed in their book Willpower, the simple act of making decisions can drain your willpower. So why waste such an important thing on small, repetitive decisions when you can just point to a policy.

Moreover, approaching any business, but especially real estate, in a haphazard way will lead to all sorts of problems. Treating real estate like a business means approaching real estate systematically. It involves learning from mistakes and adjusting your systems to avoid such mistakes in the future. If you are a flipper and you analyze property A one way and property B another, you will undoubtedly miss things, make mistakes and cost yourself a lot of money. If you are a wholesaler, you may not lose money, but you will waste a lot of time pushing bad deals at other investors. Or leave money on the table by pricing those properties too low.

And of course, if you are a landlord, and don’t treat real estate like a business, it is just a matter of time before tenants drive you crazy.

A haphazard approach will cost you in every area of business. Whether it’s marketing, acquisition, negotiation, rehabbing, selling, accounting, leasing or maintenance, a systematic, business approach that separates personal from business is critical. And this goes for part-timers and full-timers alike.

Real estate is not a hobby, it’s a business. So treat it as such.