In Real Estate Variety Can Be the Spice of Failure

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varying your real estate strategyIt really bothers her.  At the Olive Garden I always order lasagna.  At Taco Bell it’s a tostada and three tacos.  The Outback Steakhouse has to be a rib eye with broccoli and a glass of red wine.  When we eat at our favorite neighborhood bar and grill, my go to meal is the honey barbeque wings and salad.  Every pizza I eat – dine in, take out or delivery – must have sausage and pepperoni.

My wife says it’s boring.  Don’t you want to try something new she always asks?

No, I don’t.  I know what I like.  Imagine how disappointed I’d be if I ordered something different and it was awful.  The regret would be unfathomable.  My mind would be full with thoughts of what could have been.  And my stomach would be empty.

I have a similar appetite when it comes to buying distressed fix and flip properties.  I want the same thing every time – newer homes with at least 3 bedrooms, 2 bathrooms and 2 car garage.  They must have a tile roof and stucco exterior.  The fewer repairs the better.  I’m not into fix major plumbing, electrical or structural problems. I paint them the same color and use the same carpet, tile, appliances, blinds, fans, door hardware and light fixtures.  My properties even smell the same – I buy cinnamon apple pie air fresheners in bulk.

That’s because I’ve learned that in real estate investing variety can be the spice of failure.  By keeping everything the same I stay focused, and on budget.

But lately what I want hasn’t been on the menu.  Houses that fit my buying criteria are getting bid up too high at trustee’s sales.  Short sale and REO inventory levels are very low here in Phoenix.  Competition is intense.

So I decided to try something different.  A Realtor I know brought me a deal that, on paper, looked very solid.  It was built in 1979 with an asphalt shingle roof.  An addition was built a few years ago increasing the livable space by about 900 square feet.  My buy price was $121,000 and in good condition I could flip for around $200,000.

On Tuesday, I met an inspector at the property and I paid him $155 to do an “investor” inspection.  He went through the entire house and I didn’t like what he found.  Mold, termites, electrical problems.

And the room addition?  Let’s just say I’ve seen my daughter build sturdier structures out of waffle blocks.  The inspector explained that it is settling faster than the original home.  And since they are connected together at the roof trusses the whole west side of the house is starting to collapse.  Several of the trusses were starting to split apart.

For me, buying a house in this condition would be like ordering the salmon at Outback Steakhouse.  It just doesn’t feel right.  I know now that older houses and major repairs just aren’t my thing.

If you’re just getting into real estate investing it’s important to determine as quickly as possible what feels right to you.  Maybe you like doing the major renovations.  There are investors that prefer big remodel jobs in historical districts.  I know a guy that likes really small houses he can fix up inexpensively and rent out.

Find a niche, a neighborhood and a profile property.  Set guidelines.  Keep in mind that variety is good if you’re looking for place to eat.  Apply it to your real estate investing business and it could cause indigestion.

About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

16 Comments

  1. It’s true that change is good, but i’ve seen many people jump from one thing to another to realize that it’s too late. I’m personally a static guy who likes to focus on one thing and stay with it until making it work. Thanks for the advice

    M Mark

    • Mark, yes, change is good if it’s to keep up with your competitors or technology. But changing business models can be fatal. Apple has changed over the years. So has IBM. But their products and services have remained constant.

      I’m changing all the time. I use new technology to acquire houses, communicate with my trades and raise capital. But the product and exit strategy remains the same.

      Thanks for reading!

  2. Great article!

    Now, I will try just about anything food-wise. In fact, I try to order something different each time I go to a restaurant. This is probably why I am so . . . well . . . round. 😉

    But when it comes to real estate, I’m with you. I’ve found what works for me, and my niche is the older homes (old mill-houses, or brick ranches from the 50s and 60s), 3+BR, 2Ba, large yard, neighborhood I’d live in with no hesitation, not overrun with rentals. I shy away from the very new houses that seem like they were thrown together–these often have big problems. The older houses with good ‘bone structure’ are worthy of repair and more up my alley.

    I use the same paint colors, tile, countertops, fixtures, vanities, lights, etc. This way I can buy these things in bulk and I don’t have reinvent the wheel for each house.

    Keep it simple.

  3. Marty,
    I sure do miss you my old friend. Seriously Marty,
    I love to read your articles (but you didn’t know I was a fan of yours). I always have been my friend. You are a great writer, great investor, and a great friend. As for this article, right on the money. You sure know your stuff.

    Mark

  4. Great article, though because of my niche, I do make minor changes in light fixtures, etc. A moderate size make-over of a 1950’s home with good bones near colleges and a restaurant/shopping area that’s favorable by “granola types” that don’t want cookie cutter, but don’t quite have the budget for a steak.

  5. Great article Marty! I totally agree with you that we should know what our interests are and focus our investment on that. Having a variety would only cause trouble, especially if you lack knowledge and experience in real estate investing.

  6. Eric C. Fahrner on

    Your “lack of variety” suggests that you are VERY BIG on a systematized approach that yields consistent, preditable results. This is definitely a GOOD thing.

    I tried to teach this concept to my two sons at McDonalds. Or rather, at TWO McDonalds. We walked in to the store at 75th Ave. & Bell and ordered 1 Big Mac and an order of fries and a Coke – to go.

    Then, we went.

    And we drove up 5 miles to the NEXT McDonalds on Bell Rd. and ordered the exact same thing. I switched the bags around and they couldn’t tell which one came from which McDonalds.

    And THAT was the point! They have EVERYTHING systematized, and they deliver consistent results to the customer every time. Now, the the point has nothing to do with whether or not a McDonalds’ hamburger is all that good or not… I read somewhere that I can make a MUCH better burger than they can. But I absolutely cannot deliver millions of McDonald’s-style burgers to eager customers all over the world, consistently and in the manner to which they are accustomed.

    And that’s the lession I’m reminded of by your article. It’s all about creating the sytems that work, then WORKING THE SYSTEMS!

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