Sometime last week I got caught up giving investment property renovation tips to a young guy who was just starting to dip his toe in the water. I mean, I was on a roll for a good ten minutes before I realized the poor guy—Ryan, is his name—didn’t yet know the first thing about how to buy and sell homes for profit. He’d decided to become a real estate investor after watching several of the popular house-flipping shows on television and was eager to pick the brain of any seasoned investor he happened to meet in real life.
Boy, am I glad he met me. Investing in distressed real estate is not as easy as it looks on TV and you can get into some real trouble if you try to start out with stars in your eyes. So, I told Ryan I’d happily work my way back around to those renovation tips. But first, we were going to go over some of the hard truths about investing that most shows won’t share.
When You Buy and Sell Homes for Profit in Real Life
Done right, flipping houses is a good business to be in. Obviously, it makes for good TV too. But, it should be obvious that reality television doesn’t mirror real life and that creating great pie-in-the-sky entertainment isn’t the same as building a solid on-the-ground business. Unfortunately, I don’t think everyone knows this. So, a lot of new investors end up finding out the hard way that buying, renovating, and selling houses for profit takes more work than they expected. And, when it comes to investing in real estate, learning a lesson the hard way can easily lead to disappointment—and the end of your career. Let me share the three main sticking points that new investors experience.
Getting the Leads
Finding consistent leads on distressed and undervalued properties is harder than most new investors realize. When you don’t have a team of bird dogs to dig up the deals, or you’re not famous enough to motivate homeowners to line up and sell, you’ve got to generate leads on your own. This takes time and money. Of course, you might find that if you focus on buying foreclosure auction homes you could land a deal or two and that by pounding the pavement you might convince a homeowner to sell. But, these tactics and others rarely produce enough leads. And, because real-life returns on investment properties aren’t usually show-stopping numbers, you’ll need a lot of sales to support your growing investing business.
Costing Out the Investment
Properly evaluating a property and calculating the costs to repair it also takes a bit more savvy than you’ll ever get a sense for by watching reality television. If you don’t know what you’re getting into with the real estate investment opportunities you do find, it’s gonna be hard getting out of them with a profit if you overpay on the rehab. So, home inspections and repair estimates are a must. Buying a minor fixer that turns into a major drain because of structural issues, mold contamination, or termite damage is not a mistake you want to make. And, you’ve got to be able to assess any damage and the cost to fix it quickly since you’ll likely be competing with other investors—many of whom will be more experienced than you. You won’t see that on TV either.
Selling Too Low
Less experienced investors also often make the mistake of underestimating the After Repair Value (ARV) of a house. When determining the ARV, you’ve got to take a look at what other homes in the area of similar size, style, and condition have sold for. Be sure to compare features like the number of bedrooms and bathrooms, whether or not there is a basement or views, and overall lot size. If you misfire on predicting the ARV, due to a lack of knowledge, access to relevant information, or confidence, you might sabotage the ROI. It’s unrealistic to expect the big returns on one property that reality TV advertises—trust me, flipping houses is no get-rich-quick scheme—but that doesn’t mean you shouldn’t make every effort to get all the numbers right, including the ARV. Do your homework so that you don’t end up shooting your profits in the foot.
There’s a lot more to buying, rehabbing, and re-selling houses than I’ve covered here and, in some ways, I’ve oversimplified things a bit. But, I hope I’ve gotten your attention. See, the reality is that, in order to successfully invest in real estate time and again, you can’t rely on TV to give it to you straight. What you can rely on, however, are real tools that will help you make good decisions about your investments in property and in your business.
Real Tools for Succeeding as a Real Estate Investor
It’s not hard deciding that you want to be a successful real estate investor, especially after watching how easy it looks on TV. And, when you’re able to generate leads that convert and evaluate deals correctly, it’s not impossible to become one either. The trick to doing both—and doing them well—lies in the tools you choose to use. I found that out the hard way, years ago, when I worked so hard to win a property that I almost lost everything doing the rehab.
Luckily, before my investing career went totally kaput, I chose to become an independently owned and operated HomeVestors® franchisee. For me, that one last shot at success turned out to be a bullseye. Thanks to the nationwide notoriety of the HomeVestors® brand and the popularity of the “We Buy Ugly Houses®” national ad campaign, distressed homeowners come right to me. And, with access to HomeVestors®’ proprietary valuation and analysis tool, ValueCheck®, I’m able to accurately assess the repairs and estimate the ARV to see if we’ve got ourselves a deal. The work is still hard, but at least I know what to expect.
Turn off the TV and pick up the phone. Contact HomeVestors® today for a reality check on how to successfully invest in real estate!
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