I was always told as a kid, “if you fail to plan, you plan to fail,” and there is no place where this is truer than in the arena of real estate investing. Because of all the factors that can effect a real estate transaction—finding qualified buyers, performing appraisals, surveys, sifting through multiple offers, the up and down trends, and protecting against fraud—it is nearly possible for any number of things to go wrong on the road to success.
Many deals are lost due to misinformation, inadequate knowledge, and deadlines so, when it comes to investing, it is wise to plan in advance.If your goal is to rehabilitate homes and flip them, then your plan should take into account the time needed for the transaction, the length of time required for building, the cost of construction and any delays, the commissions paid on selling, etc.
These factors many not seem that hard to understand, but if your margins are small because you or your real estate agent failed to take them into account, you could very well lose, and lose big.
There is an entire cable industry devoted to showing us the problems associated with buying fixer-up homes (including the always-entertaining sight of someone losing thousands of dollars in investment).
Knowing your risk will prepare you for making investment choices, but remember there are no guaranteed results in any business. Investing is a risky business, and those who plan to enter the arena should seriously consider how much they can afford to lose. Some investors are big risk-takers, and expect hurdles in order to achieve big rewards. Others prefer a safer course, and are comfortable with smaller returns. Which one are you?
Does the high-risk-high-reward potential of the stock market suit you? Or do you feel more comfortable investing in life insurance and annuities? Whatever your answer, all means do it. If real estate investing is your passion, you should follow your dreams.
But be wary of the temptation to “get-rich-quick,” because rarely do these scenarios pay off. If someone shares ‘insider information’ that will make you ‘instantly rich’, chances are it is part of a pitch to lure you into an ill-conceived investment idea.
Most of the developers who were riding high in the pre-2009 boom had a plan. They researched the market, found potential buyers, scaled the demographic shifts, and weighed all their options with the banks. And still the market collapsed.
But those developers who limited their risk, even when the market was great, are still around today, unlike those who took too large a risk.
No matter the size of the project, treat every deal as an independent transaction. And remember, regardless of the type or size of investment, you have to plan in order to succeed.
Merrick Damon Williams
MerrickDamon Residential Brokerage
Georgia, Florida, Costa Rica