I’ve helped a lot of people throughout my professional career as a real estate investor, and you’d be surprised how often I meet fledgling investors who struggle to get their business off the ground. Jade was one of them. She initially did a few successful property rehabs and sales, but lately, she’d gotten involved in one bad deal after another. So, last week, she texted me to vent about her frustration and ask if I had any advice.
Jade needed to correct her distressed real estate investment strategy but didn’t know how. She needed to optimize her returns to turn her investing career around—or, go find a regular 9-5 job to dig out of her financial hole. After texting back and forth for a while, it became apparent that she was making some of the most common rookie mistakes that investors often do. Rather than text back a long answer, I gave Jade a call so I could go into detail about how she could get the help she needed.
Improve Your Distressed Real Estate Investment Strategy by Avoiding Pitfalls
Distressed real estate investing holds a lot of potential—if you have the right resources and tools in place. There are risks to buying distressed single-family homes and if Jade was going to turn her business around, she needed to identify where she went wrong and put some safeguards in place. But, Jade’s investing problems weren’t unusual. I’ve seen even more experienced investors make these four mistakes over and over.
Paying Too Much
It’s hard enough to find a lead on a distressed house, so when you get one, it’s easy to get overly excited—and pay too much. But, when you do that, you won’t be left with enough money to perform a thorough rehab, which lowers the value of your end product. And, if an inadequately rehabbed home doesn’t sell, you could be left holding the bag on an expensive hard money loan. It could be so disastrous to your bottom line that your business goes under.
That’s why the quality of your leads matters. If you are buying lead lists, it’s likely that even if the seller is motivated, they already have another offer or two on the table. And, the competition at auctions or sheriff sales can be downright brutal, driving the sale price beyond your reach. You need a tried-and-true marketing strategy that brings qualified leads to you.
Bad Financing Deal
Another way to kill your margins is to get stuck in a bad financing deal that has a high interest rate or other poor terms. This can happen if you found an exciting deal you wanted to move quickly on, so you didn’t shop around for a good lender. Or, it can happen if you aren’t familiar with the range of hard money offerings and take the first loan you were accepted for.
Before you even look for an investment deal, you need to do your homework on local hard money lenders. You don’t need to settle for subpar financing, even as a beginner. The best hard money lenders will have experience working with a variety of real estate investment scenarios and be able to structure financing for any good deal you find. Even better, it’s possible to find hard money lenders that actually compete for your business when you join the right network.
Underestimating Rehab Costs
It’s happened to many new investors: you purchase an investment property and one unexpected repair leads to another, eating away at your returns. This can happen if you’ve bought a property at an auction or sheriff sale and were not allowed to conduct a thorough inspection, or if you became emotionally invested in the deal and overlooked major problems. If you are not able to thoroughly vet a property, it’s time to walk away.
To vet an investment house with enough upside, you need a good property valuation tool. Some investors scratch their numbers on the back of an envelope, while others plunk the information into an Excel spreadsheet. Those options simply won’t do because it’s too easy to work the numbers this way and that way until you’ve convinced yourself that you can squeeze enough profit out of the deal.
ValueChek™ is the best property valuation tool I’ve found. It allows you to input the data easily and come up with locally-adjusted estimates for over 80 different repairs, even if you have no rehab experience. It also provides the After Repair Value (ARV) so you know how much to pay for a property and still see some money for your sweat equity.
Marketing Too Soon
Real estate investing requires patience, which is easy even for those who have an experience to forget. If you’ve run out of money to complete your rehab, you may be anxious to get the property off your books as soon as possible. Or, your rehab may have taken too long and the hard money loan is coming due. Either way, you’re gonna be tempted to market the property too soon—and accept a lower price than the house would otherwise be worth.
This trouble can be avoided by having a real estate investing mentor near you to run deals by before you end up in the hole. A solid mentor will not only help you understand whether your rehab estimates and property valuation numbers make sense, but they can also advise you on how to keep the project on track. That way, you have the potential to realize the full ARV of your investment property.
If this sounds like a lot of work just to get your distressed real estate investment strategy back on the right path, it is. A lot of investors spend years trying different solutions to find the combination that works. But, you won’t have to because I’m going to tell you what I told Jade.
All the Investment Strategy Help You Need Is Just a Few Clicks Away
By becoming an independently owned and operated HomeVestors® franchisee, like me, you’ll gain access to some of the best tools and resources in the industry. You’ll get off on the right foot with an initial week-long training that explains the ins and outs of distressed real estate investing. Getting qualified leads won’t be hard, either, because you’ll be able to leverage the nationally-known and trusted “We Buy Ugly Houses®” marketing. And, from the first deal, you’ll have access to some of the best lead management and property valuation tools—in addition to your own experienced and dedicated Development Agent mentor to guide you.
When Jade heard this, she hopped online to find out about how to get a HomeVestors® franchise of her own. Isn’t it time you gave your business a competitive edge, too? If you’re ready to develop a winning professional real estate investment strategy of your own, contact HomeVestors®.
Each franchise office is independently owned and operated.