After being involved in over 1,000 real estate transactions, either on the buy and lending side or rental side, we see very similar things from most investors we talk to. The three leading challenges that most real estate investors face have to do with valuing properties, rehab & construction cost and marketing.
If you can overcome these three challenges, you’ll be a successful real estate investor.
Comping and Valuing Properties
Most investors say, “My real estate agent thinks I can sell it for this much,” or “It appraised for this.” They’re not putting their money into the transaction—you are. I’m not saying their opinion isn’t valid, because it certainly is, you need to voice your own opinion. It is your responsibility to know what you are going to sell your property for based on your quality of renovations, or the quality of the property when it is ready to be sold.
There’s a big variance in what a property will sell for versus what it can sell for. So what you will sell for and what it has the potential to sell for are different amounts. Only you know best what your quality of renovations are. There are a lot of things to look out for: Does it sit in a neighborhood? What schools are nearby? Is it on a double yellow road? How many bedrooms does it have?
The best way to value properties is to get opinions from a lot of different people, including other real estate investors, jumping on MLS, determining what comps are, and creating your opinion based off all that information. A comp is just an opinion. It is just what has occurred. So you need to determine exactly what you think your property will sell for.
We all have challenges with rehabbing our investment flips—finding contractors, managing contractors, keeping them on budget, keeping them on timelines. It is unacceptable to go over a rehab construction budget. If you spend $5000 too much your rehab, that’s like you spending $5000 too much to purchase the property. It’s inexcusable and you can’t let it happen. Make sure you are doing everything you can on the construction side, working with your contractors to ensure they come in on time and on budget.
Marketing for the Right Deals
I’m not talking about going to auction or getting on MLS–those are great ways to find properties. However, the best way to get the biggest bang for your buck is direct mail and direct marketing to the homeowner who may need to sell their property quickly. In our experience, direct mail gets the best results. I do believe you need to use other tactics as well like bandit signs, door knocking, MLS and auctions, but direct mail gets the best results.