Real estate is nothing if not options. Do I buy the fixer, the flipper, the multi-unit? Do I wholesale, buy and hold, or joint venture? Should I rent, lease-option, or sell? One of the most important things you can do is ignore all these options, and look for the money. OK, ok, I know that sounded obvious, but you have no idea how many people (as a newbie, myself included) forget this point. They get all caught up in some great deal and forget about the numbers having to work, or they get all emotionally invested in a deal (I already put 50 hours into this!) and refuse to let it go when the numbers change.
So what’s a person to do to avoid this? As a guru once told me, if you have a written system, it takes all the emotion out of it. Just write it up, and then put your “great new deal” through its paces. If it doesn’t pass the different criteria completely, drop it, and don’t forget to continue to put your deal through its paces at each step.
For example, let’s say my written criteria (otherwise known as my system) is to buy at a maximum of 65¢ on the dollar, minimum of 3 bedrooms/2 baths, in only good neighborhoods, with light rehab. That seems simple enough (in fact, it’s a great set of criteria and will save you a lot of headaches if you make it your own!) Now let’s say you get a house that exactly matches this criteria. You’re done, right? Not really. Because you’ll have the property inspected, and if the rehab turns out to be (even) medium, it no longer matches. But now you’ve spent $100 on an inspection, perhaps the inspector hosed you and took 3 days extra and now your contingency period is over and your deposit money is at stake. You don’t want to walk away!
Well, you have to make the house fit the criteria. So go back to the seller or the bank and renegotiate until the house + rehab once again fits and is less than 65¢ on the dollar. And still note that you will be ignoring your “light rehab” piece of your system. Which is fine, until your medium rehab turns out to have a cracked foundation and is not up to earthquake code, at which point it will be a heavy rehab and you will wish you had walked away the first time.
The other piece of your system has to be how you are going to make money on the property. This could be a up front, by buying the property at a low cost and gaining the equity; in the middle, by buying the property for cash flow and collecting an income stream; on the back end, getting appreciation as the house climbs in value over the years; or a combination of these. In this market, go for one thing, and one thing alone: CASH FLOW. So what if there’s positive equity, if you’re losing $100 a month? Right now, there’s a better deal out there where you could be making $100 a month. AFTER property management. There are deals so cheap you could be making $500 a month, with an investment of $20K TOTAL and no mortgage. Don’t believe me? E-mail me and I’ll tell you where they are. And they’re not even my deals! They’re just typical opportunities in the best market we’ll ever see in our lifetimes. One more piece of advice. No matter what happens in the market, never buy for appreciation. Yes, these houses will appreciate, since there’s practically no where to go but up. But don’t rely on it, and don’t buy for it. If you can’t get a smokin’ hot deal in this market without appreciation, move on. Once the market turns around, the deals will be harder to find, but they will still be there.
A few simple, logical, but often-overlooked steps. Write down your system, and then stick to it. You’ll be glad you did, and it will prevent you from making mistakes as your business grows.