Market Information

Eliminating Mistakes is a Mistake!

Published Thursday, September 10, 2020
By Justina Thompson

In our new world of COVID, masks, and uncertainty, investors are more fearful than ever. For good reason, a mistake now could cost you big. I know there are investors on the sideline waiting for the “right” time to buy and hoping to avoid a correction, or even a crash. All this makes sense, except it could be costing you big!

Although we are in a unique time, the worry about a mistake is debilitating to many “soon to be” investors. I know investors that have been to every seminar and class out there and still have not made an offer on a property. The harsh question is, does this fear of a mistake serve you?

In general, fear does serve you. It is natural and appears when there is a potential threat. It heightens your awareness and increases your adrenaline. All of this is positive if you are in a dangerous situation. If you are serious about investing in real estate, it might serve you to use the fear to approach the business with caution, but you must continue to move forward. I understand the concerns in today’s shaky market, but you can consider these strategies to reduce your risk so you can take action today.

ONLY BUY SOMETHING THAT WILL CASH FLOW:  If the concern is a market crash and that you will be stuck with a house, so what? As long as it makes you money every month, you can hold on to it forever. With this kind of thinking, no time is a bad time to buy. I know this is not as easy as it sounds, but I am not writing an article about how easy this business is. If you are a flipper, maybe you need to underwrite the deal as both a flip and a rental? If it does not pencil out for both strategies, maybe you pass on that one deal, but you don’t pass on investing in general, nor do you pass on at least making an offer. If you are buying a rental, it should not matter too much unless you are trying to time the market, which is never a good idea in my opinion.

USE PARTNERS:  Many of you know that I have a love hate relationship with partners. They can be extremely dangerous, but they can also help you, and in some cases are needed to accomplish a goal. In a scenario where fear may be stopping you, you can spread risk with a partner. Maybe a partner has liquidity to handle a problem or great credit to get a refinance done. Or maybe you share risk 50/50 but use a partner to diversify and limit exposure to any one deal. There are many ways to leverage partnerships to reduce risks.

CREATIVE FINANCING:  When I got started as a real estate investor, I was a master at the lease option strategy. Doing over 150 lease options, I started to understand the concept and intricacies extremely well! The thing I loved most about lease options, and other creative techniques, is you can virtually eliminate risks. For example, I had a portfolio of over 30 lease options and many more standard rentals when the market crashed in 2008.
Because I wrote my lease option to renew on an annual basis, I was able to renegotiate all of them within one years’ time.
As the market was declining, I was able to lower my payments and lower my option prices by simply calling the seller and asking. This allowed me to weather the storm without losing money on these deals. For my rentals that I owned and had loans on… that is a much more gruesome story.   I go into a great deal of detail how this strategy worked so well for me in my book The 45 Day Investor,, but there are also a ton of free articles on our blog or YouTube channel.

I am currently looking pretty hard for more rentals in the Denver area. It has been challenging, as I am getting rejected by sellers a lot. I don’t have a great deal of time to put into finding off market deals, so for the most part I am dealing with MLS listings. (I would suggest marketing for sellers to most real estate investors so they are not relying on the MLS) Often times my offer is much lower than the listed price, but it is the price I need to feel safe. If or when the seller says no, I move on. I know that if I stick with it, some sellers will say yes!