Keep It Simple

[Adam Tafel]

Keep It Simple

I see smaller investors overcomplicate deals more often than they underestimate them. They tend to overestimate repairs, vacancy, and expenses instead of keeping the analysis simple.

It takes a few deals to get comfortable, you are going to make some mistakes. Once you have a few renovations under your belt with the same contractor and have worked on a few houses of similar age in similar locations, you get to the point where you just get it.

I walked a SF home in NE Mpls this morning, completely destroyed. It took all of 15 minutes to figure out ARV, renovation budget, rental figures, and ultimately what I'm willing to pay. This is really simple stuff, but newer/smaller investors get obsessed with the analysis rather than jumping into a project with the willingness to learn.

I am NOT saying to forget the numbers or “just pick a deal and buy it” - find a deal which checks the following boxes:

• -Price under adjusted values of comps
• -Clear value-add path
• -Strong rental data to support income projection
• -Income>Expenses

Do it consistently and you’ll get better and better margins as time goes on. Keep it Simple.

[Stuart Udis]

It cuts both ways. Chris is correct, a ton of wasted spending on asset protection strategies that aren't even relevant in the context of owning real estate or resolving disputes related to real estate. The issue is most investors can't articulate what they are protecting or how disputes or claims are actually resolved.

While that side of the business is often overcomplicated, the acquisition process itself is frequently oversimplified. Investment decisions are reduced to spreadsheet projections that rarely reflect the realities of how real estate actually operates. Underwriting often becomes an exercise in determining whether enough value can be created on a spreadsheet by manipulating a renovation budget to recover invested capital at refinance, while far less attention is paid to understanding the fundamentals that ultimately drive performance.

Most investors fail to adequately evaluate the market and neighborhood, barriers to entry, competitive dynamics, long-term demand drivers, or the risks associated with lower-quality real estate simply because the spreadsheet appears attractive.

The irony is that many of the same investors who overspend on unnecessary asset protection measures are simultaneously underinvesting in the quality of the real estate they acquire. In many cases, a portion of the money spent on complex asset protection structures or guru training would be better allocated toward a larger down payment to acquire better quality real estate.  Better real estate usually provides more meaningful risk reduction and better performance than the strategies many investors undertake.