Isn’t is amazing how we sometimes receive messages from the most unlikely sources? When we think of Real Estate investing our thoughts are usually of the value of the property,the rehab costs and what the projected rate of return will be on the investment. These things are very critical to the success of a project…but sometimes we have to recognize the messages we receive from some unlikely places.
I had just finished a lengthy conversation with a novice investor who had been excitedly explaining to me how he was going to purchase and renovate a property. It was very evident that although he had experience working with a local Historic Foundation in completing restoration work on several historical properties, he did not have one clue about the basic rules for acquiring, financing and rehabbing property as an investor.
As we were going over the numbers for the project it was very clear that the acquisition and rehab costs would almost equal the after repair value of the property. This man was setting himself up for a massive failure.
The property he has considering had been empty for almost a decade, was in a less than desirable area, and was showing external evidence of serious structural problems. The estimated rehab costs he provided would not begin to cover the labor and materials required for this “all of the above” rehab.
As I leaned back in my office chair, thinking about our conversation, I saw a small framed quote on my book case. The message was “Write yourself A Happy Ending”.
As investors we should strive to “write a happy ending” for every investment property we acquire. There are several ways we can plan to create a project that will be a success.
1. Take your time locating a property. NEVER purchase a property because you are in a hurry to become an “investor”.
It is important to remember that an investor is someone who is willing to be patient and is looking for a return over a period of time on a portion of the properties they acquire. And the properties purchased for resell on a shorter time frame also need to meet clear cut criteria to insure a higher degree of success.
2. Avoid being a “speculator” make sure you do your homework on every property to determine the current market value in its “as is ” condition and what is a reasonable after repair value one the work is completed.
3. It is always recommended to have a professional assist you with these values. If you are just shopping for properties, then your Realtor can assist with providing recent comps and maybe even a Brokers opinion. If you are serious about the property, then an appraiser should be considered to offer an official value.
4. As a novice investor, be sure to locate a mentor who is experienced with purchasing, rehabbing and marketing properties. It is always advisable to select someone familiar with the market in your area. They can assist you in locating a property that fits your investment risk level. Contact your local Real Estate Investor’s Association and ask that the recommend several investors for you to meet.
5. Always do business with a recommended contractor. When working with older homes and rehabs, it is very important to locate a contractor who is familiar with this type property. Again, your local REIA will be able to offer suggestions of contractors in your area.
Real estate investing is a challenging occupation and even more so in today’s uncertain economy. We can, however, continue to be successful if we take our time, get the education we need and create a plan that keeps us on the road to success.