As a Realtor with over 16 years experience, I’ve noticed how real estate investing has become the trendy thing to do. Whether it’s selling, flipping, wholesaling, teaching or coaching, it seems that more people have jumped into the game of real estate in one form or another. Now from an agent prospective, this is a great thing because the market has improved dramatically. This improvement not only prompted individuals to get in but also institutional investors; which increased trading on the residential side of the fence. Their entry or takeover, depending on who you ask, made it difficult for the typical investor because these organizations not only have deep pockets but also direct connections to the other institutions that own real property assets. That discussion is for another day. I said all that to say is that with the entry of the returning investors and new investors there is even more room for error and people to be taken advantage of or just not having a full understanding of the many facets of the business.
I’ve had the pleasure of assisting some very smart and successful real estate investors and developers and some not so savvy investors. I’m a lifelong learner and I try to ensure that I discern the bigger lessons to be learned directly or indirectly. Here’s 3 of the many lessons I learned:
1. CASH IS STILL KING
I know we hear about how you can do real estate with no money, other people’s money, hard money, etc…that’s all true but my client’s who were not overly leveraged and had cash during the downturn made a killing in the market. There were plenty of investors, even myself who owned properties but had mortgages on them under the guise that we could just sell them when the market increased or either refinance, if necessary. When the market did the exact opposite, values decreased and banks stopped lending…most of those investors lost those properties or sold them at a loss.
In recent years, the clients who were in position to take advantage of the low prices and didn’t need a loan to purchase property, are now sitting on a ton of equity or have sold the properties at almost a 600% increase of what they paid for it in some areas. These same investors are taking those returns in equity or cash and are able to maneuver these rising prices better because they still don’t NEED a loan to get a deal done but have the ability to get one because they have so much liquidity and are better prepared for when something doesn’t go right in that fix and flip. The main lesson in real estate investing as with many other areas of business is to have as much cash as possible. I know we all have to start somewhere to build those cash reserves but the less reliant you are on lending institutions, the more they want to give you money to play the game with.
2. BE DECISIVE AND STICK TO THE PLAN
I encounter investors who don’t have parameters and are open to any deal if, “the numbers make sense”. If I had a dollar for every time I heard that!!! These are the same people that when you send them a few deals, they never work out because they don’t have a true plan or know what they want out of their real estate investment portfolio. They are trying to figure it out as they go. One of my favorite clients can tell you without referring to a piece of paper or a screen, down to the last penny what he spent on a deal and what he made and what he requires from his next investment in terms of location, price range, ARV, ROI, etc. If he is presented something that doesn’t fall into those given parameters, he doesn’t waste his time or anyone else’s time. When this client is presented with a deal that could possibly make the cut, he makes an offer that he can close within 24 hours (because he actually has the resources and doesn’t have to go find the money); not some filler offer (that’s number 3). Now I know someone is reading this and asking, what if you are venturing into uncharted territory in regard to a product type? You can still have a plan. If you need help drafting a plan, that’s where mentors, myself and other consultants can assist you. There are also a ton of free resources out there.
3. MAKE YOUR INITIAL OFFER, A STRONG OFFER
The best deals are the deals that everyone walks away from happy. As a buyer or seller, you know what you can or cannot afford to sell or pay for a property. Nothing annoys real estate professionals more than people making offers that they had no intentions on keeping. Or, worst yet lowballing on a property that gives no indications that that strategy would even work (there are instances when you should give a substantially lower offer, if you would like to know if your deal qualifies as such contact me for more information). Tire kickers are people who appear to be interested in buying something and asks a lot of questions or even makes an offer but no terms ever satisfy them. These tire kickers can get their offers accepted and still don’t close because that wasn’t the intent in the first place. Also, when parties to the transaction try to use any excuse or discrepancy as a reason to re-trade (renegotiate) the deal, that’s also a sign that they may not close. This is why I always advise sellers to disclose, disclose, disclose. Surprises typically justify the re-trade. Please don’t be a tire kicker, it not only makes you look bad but also the poor real estate agent representing you. People talk and you don’t want the reputation as the person that never gets to the closing table or even the agent who writes the bold offers ALL the time. Agents write these deals because there are instances where we may need the income so they bank on the possibility even if it’s improbable.
When I reference a strong offer, I don’t necessarily mean your highest offer. This is more of an art than a science. There are so many other terms that buyers and sellers may deem just as or even more important than the price. Closing date, inspection period, the type of financing, closing attorney and earnest deposit can be a deal breaker for some.
I hope these lessons gave you some insight into how some of my successful clients have built their legacy, one property at a time.