Are You Ready To Close Your First Deal?
By JD Esajian on June 30, 2017
The best real estate investors are those that can adapt to any situation. They know that no two deals are the same and there is no such thing as an easy deal. Instead of complaining about a lack of volume they spend any down time preparing themselves for their next deal. What you will find is that the investors who are truly ready to act are much more likely to have a successful deal. It is not enough to get your offer accepted. You need to know everything about the property, the market, business operations and management to maximize your profits. On the flip side if you try to learn as you go you will inevitably stumble and struggle your way through the property. Here are a few things that will help you close your first day.
- Market Knowledge. Do you have a good grasp of what is currently going on in your market? The market the property is in often has a bigger impact on your bottom line than the actual property. If the market is trending downward it is up to you to do your homework and figure out why. Some markets experience short term dips because of school consolidation or budget problems. If the problems are fixable these can be markets to find hidden gems. If the problems are rooted in employment and foreclosure they could take longer to deal with. It is up to you to constantly take the temperature of your investing market and know the demographics. If a there is a deal outside of your primary market you need to tread lightly. Most deals are time sensitive and don’t give you enough time to study the property and the market while you figure out what you want to do. Always know which way the market is headed prior to making an offer.
- Financing. Well before you plan on making an offer you need to have financing in place. It is much too late to start looking when you are presented with a deal. There are multiple financing options that you could entertain. The kinds of deals you are after often dictate which type of financing you should use. If you plan on looking for bank owned properties, short sales or foreclosures you had better have hard or private money at your disposal. If you target distressed sellers that may be able to stretch out their closing date you can utilize lender financing. Whatever option you choose you need to either have your proof of funds or prequalification ready. Most real estate agents, and sellers, will not even entertain your offer unless these are in place.
- Property Analysis. What makes an attractive deal has more to do with the numbers than anything else. When a new deal comes your way, you need to have a system in place that can quickly analyze it. If you try to fit a square peg in a round whole you will be disappointed once you take ownership. There are a few key components of property and deal analysis. You need to consider the purchase price with the cost of repairs and the after-repair value. Inside of those three areas there are several factors that come into play. With your cost of repairs, you need to know that you can’t just throw money at a property with the hopes you can sell for a profit. Over-improving a property can be just a big of a waste of money as under-improving. The same is the case if you only look at the highest comparable sales instead of taking a realistic view of the market. The bottom line is that you can make the numbers look any way you want on your way into the property but if you are unrealistic it will eventually come back to haunt you.
- Management Systems. Do you have an idea of how you will manage the property after the closing? Regardless if you plan on flipping the property or holding it for the long term you need to have a firm management system in place. With a fix and flip deal every day you hold the property costs you money. It is important that you constantly keep the process moving to completion. A property foreman or contractor often ensures that everything is lined up weeks in advance. It doesn’t always happen this way but good management gives you the best chance of success. The same is the case with a rental property. You may think that owning a sole single-family rental property is easy but it is often much more time consuming than you realize. You don’t want to have to experiment with different options after you take ownership. Run the numbers, play with different scenarios and make a decision on what makes the most sense for you before you get too far.
- Flexibility. There are very few deals that check all the boxes of what you are looking for. You need to pick and choose a few non-negotiable items but prepare to be flexible with everything else. If you wait for the perfect deal you may be waiting a very long time. This doesn’t mean you need to stretch out of your comfort zone and look at every new deal that comes your way but you do need to keep an open mind, especially in competitive markets.
The work you do before you take ownership can define your business. Always be ready because you never know when opportunity will present itself.