One of my favorite books is The Compound Effect by Darren Hardy. In the book, Darren, the former chief editor of Success Magazine, talks about the impact over time, of small, seemingly insignificant, decisions that we make on a daily basis.

For example, contrasting two different people:

One with the habit of having a few drinks after work each day.

The other with the habit of working out after work each day.

All it amounts to is adding or burning a few hundred extra calories each day.

On a daily basis, the effect is very insignificant, but these tiny changes, over time, end up making a huge difference.

After 5 years this one small habit ends up being the difference between having an extra 30lbs of belly fat or a six pack.

Then you look at all the other aspects of each person’s life that are negatively or positively impacted by this change, like energy level, vitality, ability to enjoy physical activities with kids, friends made as a result of the way they spent their time (at the bar or at the gym), and you can see how the small habits lead to big results.

People say the rich keep getting richer.

More accurately, it’s the people that have smart habits, that lead to daily improvements, that will gain success and continue to see further success build upon itself at an ever increasing rate.  Improvement almost becomes set on autopilot.

It’s just math.

The same principle applies to real estate investing.

One big way to measure success in real estate is the widening of the gap between all the financing you owe on your properties, and what they are worth, i.e. your net worth.

This spread grows exponentially over time when you apply the principle of improving each day.

The first property might result in few hundred dollars cashflow each month.  Then a few more properties lead to over $1,000 extra income each month.

At the same time you are working to acquire these properties, they start to appreciate a few percent leading to an even bigger gap between what you owe and what you own.

Then you file your taxes and get a huge savings because of all the additional write off’s allowed with investment properties.

Then you look up in 5 years and you realize your tenants paid off a $100,000 of your principle, which is money you hadn’t even noticed contributing to growing the gap.

Most people don’t start this process because they look at a few hundred dollars per month that they might make from the first deal, and it doesn’t seem worth the effort, while discounting the compound effect of diligently working to improve their portfolio over time.

We have the ability each day to improve as a real estate investor by doing small seemingly insignificant actions like listening to a podcast on best practices, analyzing a deal, reading a blog, etc.

None of these actions by themself are going to make a person financially free.

Interestingly though, the vast majority of people who are financially free, say they have made these small daily improvements as much of a habit as brushing their teeth or having breakfast.

As a person gains success their perspective starts to shift, the deals they start to get involved in become more impactful on their personal finances based on the foundation and understanding they continuously gain from the experience of doing each deal.

What would have taken someone a year to accomplish their first year investing, all of the sudden takes a month or a week, because they are that much more highly equipped at their craft.

It’s compound effect, not straight line effect we see, because the gains we make each day aren’t taken away and we have to start over from scratch.  The following day we build on what we’ve already gained.

This compounding positive effect results in massive changes over time!

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