In my 15 years as a successful real estate investor, I have heard investors say a lot of things…..many smart things…..and quite a few silly things!
I totally get it, and I am not being critical. When I first started in 2001, I was 23 years-old and knew NOTHING about real estate investing. I didn’t know pier and beam from PITI from a lease option! Over the years, I have gained a lot of experience. I also have found some terrific, wealthy mentors at real estate conferences across the US who guided me, and still do.
Still, I thought it would be helpful to some of the new investors out there if I related some of the silliest things I hear investors say! Sometimes, their limited knowledge and resulting rookie questions becomes an obstacle to successful investing, so maybe seeing them here can help you.
I certainly hope so.
#1 “Why Is This House So Expensive????? Last Year It Was $15,000 Less!”
I am trying to think of something more irrelevant in real estate investing than what the price of a property was last year…….sorry, I cannot think of anything.
What the price of an asset was earlier than today is of no consequence, investors. Real estate markets change dramatically in days, weeks, months, and certainly in a year or more!
In my San Antonio TX market, things have changes DRAMATICALLY in a year.
It has become one of the stronger real estate markets in the country, but still is very affordable. That said, one of our distressed houses that sold for $29,000 cash a year ago recently sold for $59,000 owner finance. The reason is that the market simply has appreciated a good deal in that time. People here have more work and more money in their pockets.
So naturally, investors are going to pay more for their real estate investments. An investor who is stuck in the past – thinking about what he or she would have paid last year – is going to lose out on a LOT of deals in a hot market.
Here is an example: I have a CA investor who recently bought this house north of downtown – cash – for $65,000.
He is a serious, experienced investor. How do I know that? He didn’t ask me ONCE what the house was worth last year (it probably would have sold for $50,000 this time last year). That, he knew, makes not a whit of difference. All he cared about was getting a good price TODAY. He did. And on this property, he is making 12.9% per year right now.
Take Away: Don’t think for a second about what that deal was valued at yesterday or a year ago. Look at current market conditions and comps and make your buying decision accordingly. Focusing on the past allows 12% ROI deals to slip through your fingers.
#2 “How Much Did YOU Pay for This House?”
This silly question is obviously related to the one above. The common theme is focusing on the PAST, and not focusing on what you can make on the property in the FUTURE.
Sometimes I want to tell the new investor, I paid $1 for it. And I’m charging you $25,000. 🙂
Seriously, I have had investors give away properties to me for a few thousand dollars because they needed to unload it. I turned around and charged $18,000 for it – the current market price. I have had people sell me car lots for 1/3 of their value because they needed the money, and then I turned around and sold it at a 200% profit.
And that is completely and totally fair. I would expect any experienced investor I work with to do the same. Those examples are rare, but they do happen.
Here is an example: I bought this house that no one wanted for $15,000 cash:
My investor bought it from me for $20,000, a $5000 profit for me. He then had $5000 in light rehab done on it. Subsequently it was sold with owner financing for $39,900, the fair market price for the home.
The investor never asked me what I paid for it, because all he cared about was what HE would make on it. That’s the right attitude.
Take Away: EVERYONE makes money in a good real estate transaction. That’s not only normal, it’s how it should be. Don’t worry about what the investor bought it for. Worry about how you can make money on it. If the numbers make sense, buy.
#3 “That House Is So Ugly! I Can’t Buy It!”
Investors, I financially retired at 28 by buying the ugly houses that most of you reject. Last fall, I bought the below ‘junk property’ south of San Antonio for $25,000 cash:
It was a hoarder house on 2 acres that they occupants desperately needed to sell, so I got it for a fantastic price. Other investors scurried off because it was ‘ugly.’
I then sold the property for $36,000 cash to an investor, who put $10,000 into it. He then sold it owner finance for $72,000. It is going to be a really lovely homestead for the couple who bought it.
My total profit on an ‘ugly house’ that no one wanted: $12,000.
Take Away: Ugly properties can be fantastic bargains, especially ones with roof and foundation problems. Most investors run for the hills. This means you can get an incredible deal. My advice on ugly houses is to do 5-10k in repairs to make them livable, and then owner finance them. Leave the finish repairs to the occupant.