I’m Starting to Realize How Easy It Is to Get a Deal Wrong

[Clement Oigoga Adams]

Good Leads Can Still Become Bad Deals

One thing I’m realizing about acquisition is that finding a potential deal is only the beginning.

A property can look promising on the surface and still fall apart because of mistakes made during the acquisition process.

Some of the mistakes I see beginners easily overlooking:

• Poor lead qualification — spending too much time on properties that never had a realistic chance of becoming a deal.

• Weak follow-up — having a good conversation with a seller and then failing to stay consistent.

• Unrealistic repair estimates — underestimating the work needed and discovering later that the numbers were much tighter than expected.

• Misunderstanding ARV — using an optimistic after-repair value instead of studying comparable sales carefully.

• Rushing negotiations — becoming so focused on getting the deal under contract that important questions aren't asked first.

The interesting part is that none of these mistakes necessarily come from a lack of effort.

Sometimes the problem is simply not having a strong enough acquisition process yet.

I'm still learning how experienced investors evaluate these things before committing time or money to a property.

For those who've been doing acquisitions for a while:

What is one acquisition mistake you see beginners make repeatedly, and what lesson did you learn from making or witnessing it?

[Michael Troy Giampa]

I’ve been appraising residential real estate for 34 years, and the mistake I see repeatedly is over improving on items typical buyers don't necessarily need but new investors think they might want. Every experienced F&F around here looks almost the exact same. Acres of gray LVP, inexpensive stone type counters and new cabinets throughout and stainless appliances is the starting point. And after reviewing over 700 budgets I see exactly how much they pay which is usually much cheaper than a new investor can get because these crews are kept busy. $40k is around the minimum up to $200k or more for bigger homes in this area. 

The trap is spending another $30K, $50K or $100K on upgrades because you might think buyers will love them. Buyers may love them, but that doesn’t mean they’ll pay dollar for dollar for them or at all. The experienced flippers tend to know exactly where the market stops rewarding additional spending. Just look at the interior of homes in your area on Zillow that are flips and you'll start to see they all look the same.