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Posted over 9 years ago

Protect Yourself and Think Conservatively

If you're a new investor then it's really easy to get caught up in all the hype and think you're just going to make easy money by making a few phone calls. 

Sorry to hit you with the reality, but it doesn't work that way . . . in real life. 

Keep in mind, there are many different business models and levels of investors.  If you just want to buy 3-5 rental properties a year through a realtor and put down 20% on each one while having someone else buy down the mortgage for you (tenant), then sure, that can be very part time.  Do this every year for a few years and you will set yourself up for a nice retirement in 20-30 years. 

However, if you're interested in creative real estate (little to no money down) with motivated sellers then it's an entirely different game. In fact, it's a numbers game.  

You'll be doing marketing on a high volume, as an example, 1,500 postcards mailed to vacant houses.  On average, that will generate 15 - 20 calls. From those calls you'll make 10 offers, after doing research on house/area/values and on average, you'll get 1 accepted. 

If you're new and just starting out, your closing ratio may not be the same, so plan for 2 months of marketing costs before you make a profit.  If it happens sooner - great!  You have more money to put back into marketing.

Once you get that offer accepted, it's time to be conservative and plan properly.  If you're going to keep the house as a long term hold, then plan for expensive repairs and vacancies.  Put some money aside to help with these things.  If the numbers show a $200 a month cash flow, then plan on a $100/month cash flow.  This way, if the extra happens - it's gravy. 

If you think the property will need an A/C unit in 2-3 years, start saving for it now. Tenants don't change filters so A/C units tend to get put through the ringer.  

One of the ways that I get around a lot of this is using tenant-buyers as my exit strategy.  I get a small (3-5%) down payment from them and lock in a price that they can buy the house for while they get their credit straightened out.  I give them a break on the rent (maybe $50/mo) if they don't call me for any repairs and do them themselves.  I use a standard rent-to-own contract for this.  Bill Bronchik created the one I use. 

The point is that things happen.  Not everything always works out exactly as we expect it to and being prepared for that is key, especially for new investors with little to no cash. 

Don't let this keep you from taking action, just take calculated, conservative action and protect yourself with good common sense.

Creative real estate investing is about buying right, making good offers, planning well and having multiple exit strategies.


Comments (2)

  1. Nice post. Real estate is easy for the one ready to put in all the heard work while being diligent with the numbers. There is nothing like easy money in any industry whatsoever. Nice work on having tenant-buyers. Thanks for sharing!


  2. Good read. I'm totally on board with your way of thinking.