Rule #5: Bad Deals
Bad deals come in many forms.
When you know what to look for and what to avoid, you won’t be one of those investors forced to exit the real estate market because of a bad decision.
There are two general types of real estate investors:
One who is well advised by an experienced guide and takes measured, predictable steps to invest successfully, and
One who goes it alone after reading books, networking with other investors on social forums, watching real estate guru videos or attending their conventions
If you’re the second type, you could be courting financial ruin and a rapid end to your passive income dreams. However, if you pivot and get an experienced advisor with the expertise to guide you to achieve your goals, you’ll be on the pathway to a solid investment strategy and a much more positive financial outlook.
Let’s myth-bust some common practices. The BRRRR method (Buy, Renovate, Rent, Refinance, Repeat) is a popular approach to real estate investments, and many believe it’s the only method. What most people fail at with this method, however, is the Refinance portion.
The way you assess a deal is not the same way the bank will assess how to protect their investment.
I have watched far too many investors not get their money out of the back end of a deal because the property failed to appraise at the value they needed to do so. The market conditions have to be perfect for this method to work—and, it doesn’t work in every market. An experienced real estate investment advisor will know if your property’s market is beneficial for the BRRRR method and guide you accordingly.
Another myth is that a spreadsheet can prevent you from making a bad investment decision. This is simply not true. For example, a spreadsheet cannot tell you if you’re investing in a high crime area where the tenancy is very transient and evictions are likely. Your spreadsheet cannot tell you what to expect for fair market value or an area’s maximum rent potential. A spreadsheet accounts for actual income and expenses or it predicts proforma. You should never buy on proforma but whether to buy the deal or not depends on everything in between. An experienced guide will help you understand and assess the in between factors.
Many investors look at spreadsheets which only display one year’s worth of financials. Your financial analysis needs to be projected over your entire hold period. Your decision to buy or not buy a property should not be made based on one year’s worth of financial projections if your intent is to hold the property for many years. Your spreadsheet cannot show you how to increase occupancy rate and decrease expenses over your hold period.
Your spreadsheet does not project the “J” curve that naturally happens when you buy value add real estate investments.
Without having a natural understanding of what to expect with your investment it is quite possible you could make a decision to buy the wrong property, sell too soon or make decisions that ultimately result in a loss. You need an experienced person to help you find the best deal, negotiate the best price and learn how to protect your asset over the long term.
Buying real estate doesn’t need to be scary, and it doesn’t need to be unpredictable—get help.
By working with a real estate investment expert, you can watch your assets grow and become more profitable over time. When you leverage your assets to buy more assets, you’ll begin building a reliable passive income pathway to financial freedom.
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