Rich Dad Education – Real Estate Blog

Dedicated to Elevating the Financial Well-Being of People from All Walks of Life

Don’t Get Distracted by the “Deal”tails!

deal tailsI received an email today that reminded me how easy it is to get into an analysis-paralysis mode when an owner calls with a property they want to sell.  The potential of getting a deal often sends investors into a frenzied whirlwind of over-analysis.  When buying wholesale, we are looking for situations where we can buy the property at a significant discount.  This usually means we are dealing with owners who are in some sort of crisis.  It could be anything from a nasty divorce to a lost loved one.  In any case, it can seem difficult to unpack the baggage to get the information we really need from the owner.

This is an all too familiar story for many new real estate investors.  Your heart races with excitement when the owner calls and seems motivated to sell.  You start with good intentions to follow the script, only the owner seems to be evading your questions with a canned, “I don’t know!” or going off on some irrelevant tangent.  You find yourself afraid to ask the questions you need answers to for fear of upsetting them and losing the deal.  Or maybe you all together forget your questions because you are caught up in their circumstances.  Once you hang up the phone you realize you are overwhelmed and don’t feel you have enough information.  So you set off on a quest to find the golden nugget of information that will make the heavens part, the choirs sing, and the confidence to make the most perfectly concocted offer.  Only after awhile you are frustrated, overwhelmed, and empty-handed because someone else got the deal.

Understand that owners are often dealing with a lot of stresses and the information or lack of information probably has more to do with the emotional circumstances surrounding the real estate.  The owner may not even be aware that they are giving you the run around because they themselves may not realize the effect the situation has on them.

When this happens, don’t get sucked into the confusion.  Just remember what you really need to begin evaluating a property:

1.       What is its potential? – Will it increase in value if it is repaired?  Will it increase in value because of the market appreciation?  Is there some unseen value by changing the use of the property?

2.       What kind of profit do you need to make on the property to make it a good investment for you?

3.       What expenses will you incur in the process of recognizing the property’s potential?  This could include repair, holding, and closing costs just to name a few.

So now step back and ask yourself, “What do I really need from the owners?”  The biggest thing initially is just access to the property to be able to estimate the repairs.  In Wholesale Buying, I often talk about making offers site unseen to streamline the process, but if you have an owner that isn’t giving you enough information or seems uncomfortable, it may warrant you meeting with them before you make your offer.  So if at the end of your conversation you don’t feel you have enough to make an offer, a good course of action is to make an appointment to see the property.  This will keep you moving forward and make you accountable.

Often I see investors obsessing over things that don’t necessarily change our evaluation process such as the owners’ mortgages, tax liens, and asking prices.  They haven’t even made an offer or seen the property and they are burying themselves in research.  While these things may affect the strategies we use they don’t generally change our bottom line.  We still need to be profitable or we won’t stay in business.  If an owner won’t sell at a price where you can buy, all those other pieces are irrelevant.   Now after you make an offer, if an owner can’t sell because of mortgages and liens, then we can use our arsenal of strategies to help the owner and create a deal.  My point is don’t get caught up in the “deal”tails, before you even know if it’s a deal.  It’s like Mark Ray, Mentor, always says, “If you aren’t making offers, you aren’t making money.”

Now the next question is…if you find yourself caught up in analysis paralysis…what are you avoiding?  I realize that many new investors want to make sure they have all the information to do the deal perfectly.  In reality, you will never do the deal if you don’t take those first steps to make an offer.  All the “deal”tails can be figured out along the way.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: