We’ve been talking about the 14 mistakes that every real estate investor makes, but now we’re in the bonus section. Today, we’ll pick up with the second bonus mistake. To catch up on the series, visit my Youtube channel.
Bonus #2: Overanalyzing Deals and Not Pulling the Trigger.
You must learn to know what your numbers are. Understand what values and numbers you’re using to determine whether or not a property is a good deal. You have to learn to ask, “Does the property work as an investment?” Always remember that if you know a house sells for $100,000, you want that house properly fixed up to rent for $1200-$1500 a month. If it will do that, then you know you’re looking at a solid property.
A lot of people ask about rehab work. What happens if you have to replace all the carpet and cabinets or windows and floors, etc? So here’s how you figure it out. Let’s say the house is worth $100,000, but you hopefully bought it for $85,000. Then rehab is about $15,000, which means you’re still at $100,000 investment.
So if you’re making $1200-$1500 per month in rent, then you know the numbers work. The purchase price and rehab cost added together equals your investment, and you’re making 1.2%-1.5% per month in gross rent. These monthly rental return percentages tell you immediately that you’re going to have some level of cash flow. This helps you not overanalyze whether or not something’s a good deal.
[tweetthis display_mode=”box”]These monthly rental return percentages tell you immediately that you’re going to have some level of cash flow. [/tweetthis]
So you have to start first with the numbers. Does the property cash flow? I’d rather have a property that’s not as well located as another property but will cash flow, than a property that’s well located and doesn’t cash flow well.
I’ve seen people before have 10 or 12 deals they’ve been looking at, but they never pull the trigger and write a contract. If the cash flows are right, then you simply have to do your due diligence on the financing and the inspection. Make sure you have your finances in order so you can close on the property. You also need to use your inspection as your last out.
I’ve seen properties that inspect really well, but we’ll find aluminum wiring in them. Or if the property is off the ground, we’ll find copper piping for water. If I see some of these issues, sometimes I won’t buy the house. Or if I do, I’ll replace all the copper with plastic. That’s important because people will actually go under your house and steal all the copper pipe to sell as salvage metal!
So if you know what you’re doing, you have some idea of the kinds of houses you want to buy, and the numbers work, then don’t overanalyze. Use your financing contingency and your inspection contingency. You also again want to put in a contingency that your partner needs to approve. Don’t overanalyze. Don’t be guilty of paralysis by analysis.
Make sure you pull the trigger and you’ll have a successful career in investing in real estate.
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