How To Deal With 5 Common Pitfalls Of The Real Estate Business
By JD Esajian on September 2, 2016
In real estate it is more common to remember your failures than your success. Almost every investor has a horror story about a deal that fell through or a tenant that caused problems but rarely do we remember all the home runs we may have hit. This is partially due to the pain that negative issues cause. When bad things happen it takes the wind out of our sails and can be difficult to recover from. It is in these times when you need to be at your best. How you deal with the real estate roller coaster defines your business and what happens next. Here are five common real estate pitfalls and how to deal with them.
- Rehab Not Selling. Doing great rehab work may not be enough to get your property sold. There are a number of factors that contribute to a successful real estate flip. Not only do you need to do good work but the market must be in your favor. There are times when your rehab simply is not generating the activity you hoped for. Instead of making rash decisions you need to take a step back and evaluate the situation. Is the property listed at the right price? Is the presentation of the property causing a problem? Is there enough marketing available? It is the right marketing? Only when you turn over every stone with the sale should you consider the alternatives. Depending on how long you have to sell and whether or not you need the capital you should consider a price reduction or explore renting options. There are times when renting for the short term and revisiting selling in a year or so is a viable alternative. A property not selling takes action but that action doesn’t have to be drastic.
- Deal Falling Through. There is a lot that goes into closing a real estate transaction. Between the financing, property inspection, insurance and title there are potential problems at every turn. Not to mention that you have to deal with a buyer, seller, real estate agents and attorneys. A smooth transaction from start to finish is the exception rather than the rule. The more likely scenario is that you will face some obstacles along the way. When these present themselves you need to deal with them head on. At the first sign of potential trouble you should reach out to everyone in the deal and let them know what’s going on. By sitting on a problem and trying to hide it you can make the issue worse. Everyone in the deal wants the same thing as you. They probably want to close just as bad as you do. Sometimes there are issues out of your control than simply cannot be fixed. Other times it takes a little compromise and patience to solve whatever problems you are facing.
- Team Not Meeting Expectations. Although real estate investing is thought of as an individual endeavor it takes a team to be successful. Everyone from your real estate agent to your contractor needs to pull their weight. There comes a time in every investor’s career when they need to evaluate who they are working with. Changing someone on your team isn’t always easy but it can be necessary. Before you get to that point you need to look at what your team is doing and how they are doing it. Make a list of specific problems you have and how you can fix them. Sometimes all you need is to communicate a little better to have a better team. Other times there is simply not a great fit and you have to switch things up. As long as you are open and honest and try not to ruffle any feathers the people around you should appreciate and understand the situation.
- Unproductive Marketing. One of the biggest expenses in every business is marketing. It is important that you get a good return for your marketing dollar. Marketing can often be viewed as a series of trial and error. You need to figure out what works and what doesn’t. Before you throw in the towel with something you need to think about if you have really given it a fair chance. Sending one direct mail letter and hoping for dozens of calls may not be very realistic. You need to send your letter multiple times to maximize results. With every marketing option you explore you should create a spreadsheet to track the results. Figure out the costs and what you are getting for your money. Shifting gears with your marketing every few weeks probably won’t give you the results you are looking for. Only when you determine what works and what doesn’t should you move forward.
- Tenant Problems. Dealing with tenants is the biggest hurdle for rental property owners. As any landlord will tell you tenant issues are all part of the deal. Sometimes the issues are not with the tenant but rather with the owner. Before you point the finger at your tenant you should evaluate how you are doing managing the property. Are you fixing items in a timely manner? Are calls returned promptly and with attention? Do you take care of the property like you said you would? If you are not holding up your end of the bargain your tenant won’t be inclined to hold up theirs. If there are real problems you need to get out in front of them before they get to big. A tenant who is a few days late can quickly lead to a few weeks and before you know it you may be dealing with an eviction. The longer you let minor issues linger the worse they can become.
Dealing with issues is more important than dealing with success. There will always be bumps in the road and problems that come your way. Always get in front of these issues as soon as they present themselves and deal with them head on.