Invest Without Complication
Investing Without Complication is one of our taglines. If you’ve been reading our magazine, you’ll notice this expression always shows up in different ways.
Disintegration of Guarantees
It seems we live in a world where language has become weakened by the overuse or abuse of certain words. We walk through the checkout line and purchase a product with a price tag of less than $30, and we are often offered a warranty on that product for just a few dollars more. I don’t know how you take this, but I always say absolutely not! I tell them that if their product needs a warranty I might as well throw it in the garbage. Finding the paperwork and then arguing with the person in charge of not paying out the warranty is not worth the $30 the product cost!
Because of the overuse of guarantees and warranties in our day-to-day marketplace, it is understandable why we are often misunderstood.
Invest With Complication?
I often field questions from potential investors who want to buy one property to offset the cost of a friend or family member going to live in an area for a few years. Typically, this is a college student who is going to spend 2-4 years in a college town and when the parents get what rents are in that college town, immediately the parents think they can make money by buying an investment property for their child and his/her friend.
This is often the reason I get a call from a potential investor to begin with — they never realize how complicated it can be.
Realtors Who Aren’t Even Realtors
1. You must find a trusted Realtor that knows the market. Just as an aside, 90% of Realtors do not know the market. In La Crosse County alone, there are on average 400-600 Realtors at any given time. For the last 2 ½ years, the average number of properties on the market at any given time has been between 220 and 275. Not only that, but several of the top Realtors have multiple listings, some of them up to 20 properties. This means that 50% of all Realtors in the La Crosse county market do not have a listing.
How could you find a good Realtor when most Realtors aren’t even Realtors?
2. The next problem is finding a property that is a value. Most new investors really don’t know what a value means. And even if they stumble upon one, often don’t realize how much work is going to be required to put it in profitable shape.
3. Problem three is real estate is reported nationally but behaves locally. And even in a given market locally can be very specific based on the street or part of town.
For instance in the La Crosse county market the city of Onalaska is in very high demand all the time, West Salem is the poor man’s Onalaska, and Holmen is the fastest growing area because of how much available land, but it is too far away to be good property for college students. Then there is the north side and the south side which function completely differently and even on the south side everything west of West Avenue behaves differently, as well.
I study alternative markets all the time, and it is very interesting to see how these basic localized issues arise in every market.
Same House, Different Street, Different Price
You can literally have the same house, build on the same street, but opposite sides, and that street is the dividing line for value. This means that even in the same condition, the same house built at the same time, one is going to always sell at a different price.
Busy streets are popular in a strong fast-moving market, but become the weakest properties to sell in a down market. Ask me how I know this?
#1 Failure Point
The biggest reason new investors fail is they do not understand a very crucial fact — you make your money when you buy, you realize your profit when you sell. Buying at the wrong price is impossible to overcome in the short term and many times even in the long term. Shaving $10-$30,000 off the purchase price is the most valuable money you can make in a deal.
This means you have to say, “No!” to many properties that may seem like a good deal, but the numbers don’t work.
#1 Success Point
Being ready to pull the trigger is the most valuable skill in the real estate investing business. My mentor Ron LeGrand always said the deal of a lifetime comes by every single day — the question is are you ready to pull the trigger?
4. The next major problem comes when assessing the rehab/building costs. It’s almost impossible to hit the numbers exactly, and underestimating the cost can put you out of business. I was trained always to estimate as correctly as possible and then to add a percentage for error.