As a real estate investor for over 15 years, I have done a lot of deals, seen many properties, and watched other investors come and go.
Way back when I was first getting started, I sought out the best real estate investing knowledge I could find. I talked with many other investors and read as much as I could before I ever did my first deal.
Some of the things I read and heard were top notch, others were dubious at best. But one piece of advice has stayed with me all of these years. It seems to ring incredibly true and forms a basis for everything else I have learned about real estate investing: no deal is better than a bad deal.
Avoid Bad Deals at All Cost
It is better to not do any real estate deals at all than to get yourself into a bad one. You cannot let yourself slip into the opposite mindset (that any deal is better than none at all). Bad deals will cost you money, time, and your sanity—and perhaps your business, friends, and family.
For these reasons, bad real estate deals must be avoided. This advice can be very difficult to remember and stick to though.
When one is trying to get started in real estate, the excitement of doing that first deal can be blinding. What is more, today’s market conditions—high prices, low inventory, and intense competition—can make even experienced investors slip. The urge to do a deal, any deal, at times becomes overpowering.
What Is a Bad Deal Exactly?
This discussion begs the question: what is a bad deal? The answer is hard to nail down, as every piece of real estate and every investor is unique.
There are, however, some pieces of sage advice that you can use to hopefully bypass the bad deals that come your way.
1. Numbers Never Lie
Many of the mistakes I have seen investors make stem from ignoring or massaging a potential deal’s numbers. Again, the urge to do a deal, any deal, can be so strong that exuberance wins the day. Cash flow is found where none exists and the song in the musical chairs of property flipping will surely not stop.
Yes, as entrepreneurs, we investors need to take risks. But learning how to do that is a carefully crafted art that is learned in part by sticking to the numbers.
2. Partnerships Very Often Sink
Some say a partnership is the ship that never sails. There is some truth in that saying! A bad partnership will make an otherwise great real estate deal hellish.
Partnerships do have their place though. They can be very successful at times. But one has to be especially vigilant before they enter into any partnership deal, especially with friends and family.
Clearly define who does what, where the money goes and how the partnership can be dissolved. Assuming someone else in the partnership will take care of some role or always do the “right thing” is a recipe for disaster.
3. Listen When Someone Says No
People say “no” for many reasons, sometimes for the right ones and sometimes for the wrong ones. Either way, listen and attempt to understand why “no” was said.
“No” can come from many places, such as another investor, a trusted advisor (like an attorney), or even a lender. And it should make you take notice.
If someone you respect and trust says “no,” do not be hard-headed and march forward. Instead, stop and think carefully about doing the deal.
Bad real estate deals can be especially difficult to get out of. There are very few white knights out there who will ride to your rescue to bail you out.
And a bad real estate deal is going to be costly—a lot more than most realize. This is why it is best to avoid them and do no deal at all.
So when you start feeling antsy and simply must have a deal, remember this advice. If you do not, you might not get the chance to try again.
Have you heard any deal horror stories? Have you experienced a good deal gone bad?
Share in a comment!