on April 1st, 2011
10. Not Having an Exit Strategy
Make sure you figure out your exit before getting involved. As they say – start with the end in mind.
I suggest you give thought to multiple exit strategies. One of the benefits of real estate is that most of the time, we have more than one option to exit our investment.
In the case of our fix and flip, the first option would be a straight sale for maximum profits.
A second exit would be to sell for a discount and still make money. And a third strategy could be to sell via a short-term lease option (6 months).
Yet another exit strategy could be, if for whatever reason the house does not sell, to rent out the property long-term and hold on until the market allows you to sell at a profit.
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on March 30th, 2011
9. Falling in Love with your Investment
“How sweet it is to be loved by you.” Make sure your fix and flip is not humming this tune! Let the numbers dictate what you buy and how you sell.
Have clear written investment criteria and adhere to it. Do not fall in love with your investment. And don’t let impatience and greed enter into your decision-making process.
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on March 29th, 2011
8. Not Having a Network of Professional Contractors
You have probably heard that real estate investing is a team sport, and if you haven’t, there it is. In order to successfully complete any type of real estate investment you will need many different skill sets that you personally may not possess.
Your job as an investor is to gather highly skilled professionals and make profitable decisions based on the feedback you get from them, as well as efficiently managing your labor force in order to get the job done, and done right.
Gather your team. Start with an agent, a loan officer, a title company, a real estate attorney, a general contractor, and subcontractors such as an electrician, an HVAC contractor, plumber, roofer etc… Make sure these guys are licensed. Tip: when it comes to contractors, it does not hurt to have at least one or two backups.
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on March 24th, 2011
7. Not Working with a Real Estate Agent
Let me be clear that when I say agent, I mean a competent agent that has extensive experience working with investors, ideally an investor himself.
Mutual criticism and resentment exist between agents and investors that stems from a difference in business culture, but I want to point out this only happens between the incompetent representatives on both sides – don’t be one of them – an investor without an agent is like a drummer with one arm.
It can be done, and done really well in some cases (Def Leppard), but you would be much better off with both arms.
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on March 23rd, 2011
6. Doing Cheap and/or Bad Work
The art of investing is to contribute value to the marketplace at a minimal cost. Contributing value can be done in many different ways but for the purpose of my example lets use rehabing. When you rehab a fix and flip there is the constant challenge of staying within budget.
Make sure to budget enough money to assure you can do quality work, if there is no money in the deal to pay for quality work, don’t do the deal. There are lots of over-eager investors out there who are willing to overpay for a deal and then don’t have the headroom to pay for quality work – don’t be one of them, turning out a bad product does not help the community, or your bottom line.
With a fix and flip you want to generate what I call the three “wow’s.” The first wow is generated when the buyer looks at your online listing or flyer and says “wow this looks really nice for the price.” Sell under market, always aim to realize your profit with a sales price of 90% of market value.
The second wow is generated when the buyer pulls up to the property “wow this is much nicer then on the flyer.” Curb appeal; aim to be the best looking piece of real estate on the block. The third wow happens when they open the door “wow this is beyond what I expected.” Deliver quality work and have style.
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on March 21st, 2011
5. Doing the Work Yourself
Here is the bottom line; do what you do best and write checks for the rest! Many investors fall into the trap of trying to save money by doing all the work themselves… don’t do it! Even professional contractors who focus on one trade know to subcontract the rest.
You have to clearly define your job description. This may vary, depending on the type of investments and on your particular skill set.
Primarily, a real estate investor should know his market, know the particular strategy he is employing, and be proficient at managing the experts he is hiring to do the work.
A note of caution, do not delegate critical decision-making. Remember, it’s your behind on the line; do not expect others to make up for what you lack in investment expertise.
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on March 20th, 2011
4. Entering into Bad Partnerships
Partnerships in real estate are very common and rightfully so. After all, real estate investing is a team effort.
We can achieve greater results when pooling resources.
The key is to carefully consider who you partner with, and for what reason.
It’s not uncommon for partners to have quite different comfort levels and priorities for investing their resources.
One may think the other is taking excessive risk, and the other may think the first is hopelessly conservative.
This type of undercurrent is detrimental to a prosperous investment partnership.
Before you hasten into anything with anybody make sure you see eye to eye.
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on March 19th, 2011
3. Paralysis of Analysis
This first one is for the engineer types – those who undertake research upon research yet never come to the place where they’re ready to move forward – paralysis of analysis.
At any given time, there is a lot of competition out there looking for a deal. Be assured that when you find a deal, you are not the only one looking at it.
If you are inefficient or take too long with your due diligence you will be too late.
At the other extreme, don’t get into a deal without knowing what you are getting into.
Realistically, you will never know all there is to know about a deal, and you can count on unforeseen issues to show their ugly faces with every deal.
The trick here is to establish an efficient system that you can follow when conducting your due diligence.
Find out everything that there is to find, in the shortest possible time, make an informed decision and commit on it.
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on March 18th, 2011
2. Taking Too Much Risk or Taking Too Little Risk
The very nature of investing is taking risk in return for a gain, but be smart about it.
Carefully prepare and take calculated, educated risks.
The foremost important factor is to protect your principal, and second is to realize a gain.
Don’t get involved in an investment just for the sake of getting in; it is better to have no investment that to have a bad one.
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on March 16th, 2011
1. Not Having a Written Investment Plan
Most investors fail to write anything down at all, let alone writing out a detailed plan – don’t you do the same. Put your investment ventures into a long-term, big picture perspective.
Start by setting a realistic objective then take inventory of your abilities and weaknesses.
Be honest, exploit your abilities and strengthen your weaknesses by hiring specialized professional help.
Draw a detailed map from A to B, and show that plan to experts in the field and people whose advice you trust. Invite feedback. Do this continuously; your plan needs to be a living, breathing work. Remember that plans are just guidelines and are not absolutes.
Adjust as you go; every step you take will lead to more clarity. It is much like driving your car at night.
When you leave the restaurant after having a wonderful dinner, and start your car and turn on the beams, you can only see maybe 200ft to 300ft in front of you, but as you start driving, the road lights up 200ft to 300ft at a time until you get home.
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