Analysis Paralysis
I've been trying to find great house to invest and flip for passive income for the last couple of months seriously. I have always been interested in land but my wife wants to solely focus on renovating homes for resale. My issue is the analysis paralysis in trying to get past the initial ordeal and pulling the trigger to get the deal done. My question is how long did most of you analyze the numbers before pulling the trigger? I am anxious to get moving but this paralysis is really killing me.
I had been looking for about 2 years before buying our first one in April 2014. Granted, I knew 2 years ago how long away I was financially because of student loans. Then in about January I really got serious and started looking at properties. I wouldn't have found one if I wasn't telling people that I was looking. Luckily a realtor that I had used in the past I had talked to and she had a fixer upper she wanted to get rid of quick. Since I had talked to her two months earlier, she was able to get me a great deal and it works out great.
Now my problem is pulling the trigger on the second deal. We have now been renting the current property for 2 weeks and I am trying to gauge the expenses before pulling the trigger. I have looked at other properties, but nothing seems to match the numbers of my first deal.
about 5minutes. I drove past a house on my way to the golf course. Called the realtor name on the sign. He showed it to me the next day, it was cheap and needed some rehab. I said I would buy it. Very little real thought. I just did it. Then the day we closed on the purchase of that house, the same realtor said he had another cheap house I might be interested in. We drove over and looked at it and made an offer right there. These were my First two houses purchased as investments. I think at the time my wife thought I was crazy.
@Arlan Potter , If I could only find a realtor who could give me the hook up like that. Maybe it will happen one day.
my realtor uses a program on MLS that emails me any time a house hits MLS that fit my buying criteria.
Most of my super deals were handed to me by a realtor. Many before they hit the MLS.
He knows I am a cash buyer and am always looking for a great deal.
Over the last 11 years, he has made me a lot of money.
Find yourself a sugar daddy realtor.
@Arlan Potter , Problem 1, I'm not a cash buyer yet. Any tips on how to become on?
I am thinking about turning my wife into the sugar mamma realtor.
@Arian Potter I have been looking at a few houses but my experiences with realtor's has not been the greatest by any means. There are a few houses I am interested in but guess I just need to call the realtor and talk with her. I would be able to pay cash if the price is right!
@Joel Davenport my wife has thought I'm crazy for the last 5 years which is ultimately the whole time we have been together because I've been more in land and land management for hunting and trying to find land to lease out or guide hunt on. My initial funding goal was timber but timber prices have fallen in Arkansas and made it hard to try and use that to fund the acreage I would like.
Hey! Another local! We might just get something going around here one day.
As far as the studying goes, I looked at houses for about 6 months after I got my finances set for a deal. Im working on that flip right now. What price range are you looking for? There are a lot of houses in the Fort if you are looking for a low cost starter flip.
More and more lovely Arkansans are connecting on BP! Love it!
Welcome @Dustin Oaks !
I'd like to respond to a few things mentioned:
The OP: Analysis Paralysis: It isn't "fool proof" but I would encourage you to more clearly identify your investment goals and criteria. Also, who is on your team?
GOALS
- Fix & flip? Fix and rent? or Buy and hold? What are you looking to do?
- What target return/ROI? 1% a month with no repairs necessary? 20% annually with maintenance and repairs? 15K every 60 days from flips? Identify a strategy or combination of strategies to meet your investment goals up front.
CRITERIA
- Property type: Commercial? Residential? Multi fam? Duplex? Single fam? What do you feel most comfortable with?
- Location: What county? city? part of city? neighborhoods? streets? How specific you can get will depend somewhat on your overall geographical play. If you are only looking in Greenwood, you might have to settle for a wider location criteria.
- Condition: What are you willing to do or hire out?
- Deal type: Do you want to play foreclosures & short sales? Because that is totally different than off market or on MLS properties.
- Price: Meet with a few lenders just to hear the investment options they have for investors. Do you know a portfolio lender? What would you qualify for for a 20% down conventional loan? What about private money lenders? Will you be using them? If so, what type of business plan, return, and timeline will they require?
- Timeframe: Set a clear "contract to close" timeline and include all of the steps you need to take once your offer is accepted to get the deal CLOSED. How soon would you be able to start that timeline? Any vacations or family getaways planned in the future? Schedule your real estate deals around them if you are doing all the work yourself.
- "UH OH / OOPS!" -- Worst case scenario criteria: What if you have a job change and move away? Will your investment strategy cause you to loose your shirt? Or will you be able to liquidate or hire a property manager? Build that cushion in on the front end.
TEAM:
- Are you going at this alone or will you be hiring help? Some team members might include:
- Lender
- Realtor
- Accountant
- Attorney
- Contractor
- Property Manager
- Inspector
If you have all of the above stuff written down and are focused on your goals, criteria, and team, then the time it takes to analyze a potential property is very short.
Example:
Goals: Buy/hold - 10% ROI with less than 5K in repairs per property in a specific neighborhood
Property: List price would yield 7% ROI and has 6K in repairs necessary and is in the best location in the neighborhood.
What do you do? To me the answer is obvious: Make an offer that puts your ROI in range and takes into account the extra repair cost. If they counter and are close to your ROI, let them know that they are "so close" but its a "no" because they are about $__ off from your sweet spot. You will be surprised at the number of people who may say "OK". If they don't, they you have avoided an investment that does not help you achieve your goals. No harm in that at all. With all of this, keep in mind that with some criteria it is ok to "flex" a little. Don't be too ridged or specific, but use your criteria and goals as a guide. Trust them and trust what you are comfortable with.
Secondly, working with a Realtor
There are some Realtors out there who are not worth their salt. Just like any industry. There are some plumbers, electricians, lawyers, and even investors who are not the best in the industry. Do your homework. I strongly encourage you to work with a Realtor, but find an excellent one who works with investors and knows the market. Find a realtor familiar with your type of property, the type of deal, etc.
If I were to obtain your list of criteria, I would look ON the market first to see what we could find. We would find some and chances are we would put in a few offers and might get you started with a few properties. And then my REAL work starts. I search for OFF MARKET properties on behalf of my investors. I look at match their criteria and when no properties are on the market that match, I do whatever it takes to contact off market sellers. I door knock, send mailers, cold call, etc etc until I find sellers willing to sell. Not all agents go to that extend, but I encourage you to search the areas you are interested in purchasing for the "go getters". Most deals are MADE not found, so find a Realtor who knows how to make a deal work. You will find a few in every market who are passionate about serving investors and representing you.
Keep in mind, in Arkansas, when you call a Realtor on a sign, that realtor represents the SELLER, not you. Their fiduciary responsibility is to their SELLER, not you. That means that they will ask you a few seemingly "harmless" questions and you might wind up paying a higher price for the property if you answer those questions incorrectly. Most of the time, the cost to you to use a Realtor is paid for by the seller's broker. That is why, in Arkansas, it is most likely in your best interest to find a Realtor who will represent YOU and keep YOUR best interest in mind (they will ask you to sign a buyers rep agreement so they can do this legally). This is completely different in other states that still abide by the "buyer beware" rules. In Arkansas, this is very serious and if an agent starts to act in their own interest or NOT in the best interest of their client, they can lose their license and pay a hefty fine. SO when you find a property you like, forward it to your realtor and get them to start the research. Don't call the selling agent thinking you can smooth talk and find out more info and then give it to your agent. We are professionals. We do this every single day. I have had other agents clients try that and I get the best price for my seller, every time. :) Find an agent willing to work for YOU and put them to work for you! When they bring you a property that matches or can match your investment strategy and goals at the right price, condition, and location, make an offer and you are off to a fantastic start!
Good luck in your investment endeavors. I look forward to connecting with you and I hope this helps you to take the next step and be confident in your investment strategy.
First...congratulations on making the decision to get into the action. Now...take some action!!!
Actually, I recommend you listen to Show 65 on the BP Podcasts with @Wendell
(sorry mis-clicked!)
De Guzman. He talks about taking "massive action". It's very inspirational. 2nd...understand what your margins need to be, understand how to do an accurate CMA & understand how to accurately assess the rehab costs...then go make offers that are below ARV - Rehab - Fixed Costs. Give yourself a little negotiating room.
As long as your contract provides you with an out, and you stay within the good range of the numbers, you should have no problem making money on the deal.
I heard this on one of the podcasts, and it's great advice...
1. Offers are free!
2. Ridiculous offers DO get accepted!
3. If I don't make the offer someone else will!
We were looking at a house by Rye Hill that was listed forever but apparently it sold! We found one that is on the North Side of town that would be great and the size is bigger than our house. The biggest issue is the location! We will have to see how the rest of the area is because when I was a kid in school, Martin Luther King Park wasn't exactly a friendly area but it might have changed since then.
I apologize for getting back so late, my wife and I are redoing our kitchen cabinets!
Yeah, youre not wrong. North side is very hit or miss. The neighborhood quality really changes from block to block. If youre looking for south side housing that isnt overpriced you might try the area around Cavanaugh and Texas. Ive seen a few nicely priced properties over there. Are you after flips or rentals or what?
I appreciate the input and will have to print it out to have a good list to double check.
Right now this is what I have:
Goals: Fix and Flip until we think we are ready to buy and hold. My ideal goal is to buy and hold in the bahamas or caribbean. I know everyone wants to do that but that is my ideal buy and hold deal! My initial start was vacant lots on the islands to eventually build on later but my wife wants us to focus around here first.
10-15% ROI would be nice and trying to stay moderate with that because I know this area isn't exactly booming.
My team currently is just me and my wife. I haven't tried any realtors yet because when I bought the house we currently live in was supposed to be a fix and flip and here we are 6 years later living in it. The Realtor wasn't very helpful and made the whole thing kind of miserable for me. I have been trying to figure out how to go about working with a realtor as an investor like this. I still need to get a solid contractor as well. I can do most stuff but I am out so much that we need one that can do it right and not give my wife a hard time. I am still working on figuring out a lender because for the most part we are looking for something we can pay cash for outright at the beginning.
I do have a lawyer that I use! But accountant and inspectors are other things I need to get situated with because I always just thought about calling someone to do it when needed, but on second thought will need to find a good one because of the reason I mentioned before, my experience buying this place I am in.
Thanks for all your input and your example! Greatly appreciated!
Thank You!!! I will listen to that podcasts!!!!
I have seen some listed around cavanaugh but wasn't sure about them! Right now we are looking for flips!!!!
Thanks
Cool. Thats what Ive just gotten into. So much fun, but such a learning process. Let me know if I can help with anything.
