If you’re going to stay in this business long, you have to learn how to keep your expenses low. Because if you don’t manage your expenses you’ll go bankrupt before you know it. (You’ll run out of cash just like most businesses do).
For example, I never recommend that a new investor do a rehab for their first deal. Why? Because we all know that a $20,000 rehab could turn into a $40,000 rehab before you know it. And not many new investors have $20,000 lying around.
In fact, I believe your biggest expense will be (and should be) marketing. You have to consistently send out direct mail, put out bandit signs and call “for rent” signs if you want to always have a solid pipeline of deals.
If you don’t do your marketing, you won’t get deals and it’s as simple as that.
However, the second biggest expense that most people experience is closing costs. And the beauty of closing costs is that they’re completely negotiable. Every deal that I go into, my goal is to pay zero closing costs and I often do it.
I just did it this week on a deal. (I’ll tell you about it in a minute). You see, every time I am meeting with a seller I tell them that due to company policy they are responsible for the first $4,000 in closing costs and our company will cover the rest. (Yes, that usually covers everything).
This is the simplest and easiest way to get all of your closing costs paid for. However, what if the seller doesn’t have $4,000? Well, you can still negotiate and try and get them to pay $1,000 or $2,000. Or can you tell them they’ll have to borrow the money from a friend, or go to a website like prosper.com and get the money.
Trust me, if the seller is motivate enough, they’ll pay all the closing costs.
Here’s the deal my partner and I just did this week. We had a highly motivated seller who was living out of state. (These are the best owners to work with).
He didn’t want to deal with the tenants anymore and just wanted to quickly get the property off of his hands. Well, we negotiated to have the seller pay all closing costs. And not only that, he also agreed to pay the November mortgage – while we’re collecting the November rent.
In other words, when we added up all of our expenses and costs for this deal, we MADE $800 immediately when we took over the house subject-to, plus we have $200 a month cash flow and plenty of equity.
Simply put, negotiate all you can and keep your expenses low and you’ll have a long and prosperous real estate career.