Sometimes you’ll hear us refer to a very simple rule for real estate investors: take nothing on faith. But what does that really mean, and why is it essential to success as a passive real estate investor? 

Essentially, we’re telling investors to do their due diligence, to ask questions, to verify, and to absolutely look a gift horse in the mouth. We’ve all heard what they say about making assumptions!

In this business, though, this principle covers a wide array of tasks. Where do investors start, and what does it look like to be a diligent real estate investor?

4 Principles for Taking Nothing on Faith

Principle #1 – Their success story is not your success story.

On the one hand, investors can look to the past and to the success of others around them to learn what to do (and what to avoid!). It’s always good to learn from others and to see what strategies served investors well through history. At the same time, we know that no two investors are the same. We all have our own financial goals, access to resources, and preferences.

Each investor is utterly unique, even if they employ the same broad strategies. While there’s nothing wrong with looking at success and saying, “if they did it, so can I!” you take a risk when blindly following someone else’s recipe for success.

Diligent investors understand that guiding principles may be the same, but in practice, things will vary between individuals. Be okay with tweaking and tailoring your strategy to fit your needs as well as the current, totally unique economic context.

Principle #2 – Play devil’s advocate.

The devil’s advocate is there to question and criticize our presuppositions. As a real estate investor, you need to learn how to do this for yourself. Taking nothing on faith means taking nothing for granted. It means examining, questioning, and challenging the things that other people accept at face value.

Will other people find this annoying? Probably. But it's better to be annoying and successful than a go-with-the-flow failure! 

As you invest, make a habit of reexamining what you do and why you’re doing it. When you pursue a partner, ask them tough questions. Try to poke holes in their strategy. This is when you’ll see if you’re working with the real deal or not.

Principle #3 – Figure out how it all works.

For many of us, especially new real estate investors, everything kind of falls into this “in theory” limbo. We know how things are supposed to work. We may understand the concepts overall. But we also need to understand how point A leads to point B. 

You know investing in real estate is supposed to generate passive income. But do you understand that process and everything that goes into it? What about tax exemptions? Acquiring properties? Estate planning? 

So many things in this business aren’t things you’ll encounter in the wild. It’s critical that investors of all levels of skill and experience make a conscious, ongoing effort to learn as much as possible – not just the how but the why. 

Principle #4 – Get involved.

Even passive real estate investors aren’t truly passive. Think about the two different approaches to a typical investment account composed of stocks and/or bonds. Plenty of people invest, check in every now and then on performance, but do little to reinvest or rebalance their portfolios. On the other end of the spectrum are high-risk day traders who spend all their time making active, fast-paced decisions in hopes of scoring big.

A diligent but passive real estate investor needs to land somewhere in the middle. You’re not handling the daily tasks of managing your investment properties, but you’re not setting it and forgetting it, either. Successful passive investors pay close attention to their monthly reports, ask their managers questions, seek guidance from portfolio advisors, and tweak things based on performance and priorities.

We must be the “big picture” people that craft cohesive, harmonious real estate portfolios. This business demands your attention and personal investment as much as a financial investment. 

Take nothing on faith. Remember that nothing is ever obvious. Be analytical. Ask questions. Pursue what works for you, for where you are and what you want to do in your unique circumstances. Investing in real estate may be guided by time-tested, proven principles, but the best investors don’t take them for granted.

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