As creative real estate investors, there are many strategies that we can implement in our businesses to minimize risk and therefore . . . Maximize Returns!
When I first wrote down the idea for this post, I had a few things in mind to list and then something happened. I started to realize how many of the things that I do regularly are done for a specific reason. And that reason is to Minimize Risk and Maximize Returns!
Many of the suggestions and tips that I’m about to share with you were learned due to hundreds of hours study, and years of experience investing full time in the field. So hold on tight because this is going to be hot!
59 “Must Know” Tips to Minimize Risk and Maximize Returns
1. Become a Wholesaler
Some wholesalers close on a property and then immediately turn around and sell it. Others never even close on it in the first place. If your goal is to minimize risk, this is the strategy for you. Find a motivated seller, contract the property, and assign it for a wholesale fee. You can easily make $5K to $10K if you’ve got a good deal and sometimes much more.
Check out these two posts to learn more about real estate wholesaling strategies:
How Flip a House for a $14K Wholesale Profit without Rehabbing It
How to Start Investing in Real Estate Without Spending Money on Marketing
2. Use OPM
If you’re not familiar with the term, get used to hearing it. I’m talking about Other People’s Money. Doesn’t matter whether it’s a hard money lender, Bank of America, or your Uncle Bob. Leverage is powerful! Learn how to use it!
Check out the Real Estate Investment Financing Strategies category.
3. Build a Guerilla Marketing Plan
A Guerilla marketing plan is a low-to-no cost real estate investing marketing plan. There are a bunch of ways to get motivated sellers on the phone that don’t cost an arm and a leg. There’s a book by Jay Abraham on the subject that’s pretty popular.
Also, there are several posts in the Marketing category that go over low-to-no cost marketing techniques. Check them out.
4. Join a Mastmind Group
Andrew Carnegie taught the power of a Mastermind Group to Napoleon Hill, and Hill penned it in the classic book, Think and Grow Rich. If you haven’t read it and care about your financial future, buy the book this week.
As far as a Mastermind Group goes, find like-minded individuals that you can bounce ideas off of. Meet regularly to discuss your experiences, hardships, and successes. This will provide valuable insight into both your business and yourself.
5. Log Your Tenant Communications
When you end up in front of a judge (notice I did not say if), the more organized you are, the better chance you have to come out on top. The judge can pretty much make decisions to suit their personal liking so it’s a great way to minimize risk by knowing exactly when, where, and how you ended up in court with this tenant. Some judges are more tenant friendly, some more landlord friendly.
6. Build a Good Contractor Team
I have heard about and personally experienced bad contractors. I’ve been given estimates for things that didn’t need repairing, had a contractor get paid and never be seen again, and had contractors that stole supplies right off the job site. As a matter of fact, I just filed a judgment against a contractor a couple weeks ago who owes me a few thousands of dollars.
OK, I’m done with my rant now. There are also many excellent contractors. You may have to look hard but we’ve built an excellent team of good quality trustworthy contractors over the years.
Check out a recent post from one of our contributors, Wil Christenson, How to Find Great Contractors for Your Real Estate Investing Renovations.
7. Order a Title Search
My mentor, Louis Brown, said to always buy title insurance. I am a proponent of doing what experienced successful investors say so this one’s coming from Lou.
8. Get Everything in Writing
With your contractors, investors, tenants, partners . . . everyone that you do business with. Write down the terms of your agreement! Determine what will be paid for any products or services rendered prior to them being provided.
You can infinitely improve your chance of building longterm professional relationships by adhering to this often ignored nugget of wisdom.
By foregoing this easy and intelligent tip, you’re putting much more at risk than you realize.
9. Learn How to Utilize Options
Options can be used as a great way to tie up property with minimal risk. Since an option is a unilateral agreement, you can choose whether or not to exercise your option and close on the property. The only thing typically at risk is the option consideration that you put down which doesn’t have to amount to much. That will be determined by your negotiation skills.
10. Buy it Cheap Enough where you Could Flip it and Come out on Top
Flipping property is the most expensive way to sell real estate. Between purchase costs, the renovation, holding and marketing costs, and the costs associated with selling any property, profit can disappear pretty quickly. And we haven’t even talked about the tax consequences!
If you analyze a property and you could flip it and come out on top, that’s a safe bet.
11. Hire a Good Accountant
Knowing the bottom line in every deal you do is vitally important. If you are set up properly, an accountant can provide you with a wealth of valuable information so that you know how to maximize the returns from your portfolio.
12. Buy Properties with More Than 1 Bathroom
One bathroom houses have always taken us longer to fill with a tenant than houses with more. If you are looking at buying a 1 bathroom house, look for a way to at least add a half bath. You’ll be kicking yourself when your 1 bath house is sitting vacant for months at a time if you don’t.
Two or more baths is ideal and makes for a much more marketable house.
13. Utilize Technology
The Internet and technology are changing the way business is done at a faster rate than at any other time in history. Staying current and knowledgeable on the applications of technology to real estate will put you ahead of the old timers that are stuck in their ways.
You will be minimizing your risk of getting left behind by utilizing technology in your business.
14. Get a Professional Opinion of Value
This could be from a real estate agent, an appraiser, or some other knowledgeable real estate pro.
Check out this post for some tips on valuing property.
15. Be Able to Survive the Worst Case Scenario
This could correlate to many different scenarios.
For Example: Let’s say you find out there’s $15K worth of water and structural damage on one of your rentals, the tenant stops paying you rent and you start the eviction process, and it takes you 6 months to get it fixed and rented out again . . .
Could you Survive?
16. Use a Good Closing Attorney or Title Company
A good attorney or title company could save you many thousands of dollars and headaches. If you are looking for someone that is creative real estate friendly, I would suggest asking people in your local real estate investing association. Referrals have always provided much more value to our company than pulling out the phone book.
17. You are NOT the Owner . . . You Work for the Owner
As soon as someone knows that you are the decision maker in relation to a property you own, you have given up a valuable position of leverage. Whether it’s with tenants, contractors, or buyers, you’re best off if you “have to consult with your partner” or “have to run it by the owners.”
18. Have Sellers/Tenants Sign a Lead Based Paint Disclosure
I’ve never had any problems in any of our properties with lead based paint but many people have. This is a standard form used for most real estate transactions.
19. Learn How to Evaluate Property on Your Own
Knowing how to evaluate a property on your own gives you an advantage. You do not have to rely on someone else’s opinion, and you’re not on their time. By doing your own evaluations, you will be able to know quickly if you’ve got a deal on your hands. And time is of the essence when working with motivated sellers.
Click on the link in #14 if you want further info on this one.
20. Don’t Quit Your Day Job . . . Yet
Relying on monetizing your real estate deals for your sole source of income can be quite challenging. If you have a good income and your doing deals to make extra money and build wealth, you will be in a great position to do so.
21. Learn Creative Deal Structuring Strategies
Creative deal structuring spans from doing subject to deals, to structuring owner financing notes payable over time, to using the little know concept of substitution of collateral, to bringing in private investors to fund your deals, and the list could go on and on. You can be as creative as you want in the contracting, financing, renovating, and selling phases.
Ask yourself continually, “What’s another way that we could structure this deal?”
22. Have Multiple Exit Strategies
DO NOT enter a deal if you only have one way out of it! Why do you think so many of the speculators that bought preconstruction deals when the market peaked are losing their investments to foreclosure. They banked on one thing and one thing only . . . Appreciation! So the market fell out and so did they.
Check out the post, Real Estate Investment Financing Strategies : What is Your Exit Strategy for more info.
23. Do What Experienced Investors Tell You to Do
Maybe it’s built into human nature to not want to listen to people and to forge our own path and make our own decisions. Well, if you’re just getting started, fight this tendency!
It is much cheaper to learn from the mistakes of others rather from the school of hard knocks! Do exactly what successful investors tell you to do.
24. Define Your Niche
This will skyrocket your chances of success as a creative real estate investor. You will make it much harder when starting out by buying a couple properties in the hood, a few nice houses in nice neighborhoods, multi-family property, a beach front condo, and a mobile home park. You get my drift anyway.
My company’s niche is single family homes in nice areas, in good condition, with an ARV between $150K-$175K. Depending on where you are located in the country that price range may sound like a war zone to you, but it all depends where you live. Here in Charleston, South Carolina, there are many areas within a 30 minute drive that fit into our niche.
25. Write Small Earnest Money Checks
Between $10 and $100 is customary for our company. Most real estate professionals (agents) typically do 1% of the purchase price. But we’re creative real estate investors so we do things a little different.
26. Use Sandwich Least Options
I first learned about this concept through Peter Conti and David Finkel’s book, Making Big Money in Real Estate without Tenants, Banks, or Rehab Projects.
This has never been my style since you don’t get the deed but there seems to be people doing it successfully. And this technique definitely limits risk.
27. Bring in a Financial Partner
My first year investing we found an excellent financial partner. An additional bonus was that he had been doing renovations himself for years. He would put up a loan for 80% of the ARV, and we partnered with him on the deal. He not only financed the deal for us but also managed the renovation. It was an excellent set up for us as beginning real estate investors, and it was also a great way for him to leverage his way into more deals. A true Win-Win relationship.
28. Hire Qualified Contractors
This can be challenging when just getting started but not impossible. Here’s three tips to help you out:
- Don’t accept the cheapest bid.
- Get referrals from other investors.
- Don’t pay for work yet to be completed (a material draw is OK but you may want to buy and deliver yourself).
29. Process Tenants Credit Applications
You shouldn’t expect every tenant to have stellar credit because if you do, you will have a major vacancy problem. At least, that’s been my experience. For awhile, we qualified our potential lease option tenants strictly by down payment and didn’t even pull their credit, but we have changed that now.
A credit report can tell you a lot about someone if you know how to read it. And if you don’t, get a mortgage broker to show you how.
30. Use an Investor Friendly Purchase and Sale Agreement
As a creative real estate investor, you want to make sure that you are well protected. Make sure your purchase and sale is rock solid and very investor friendly.
The best contracts that I’ve ever come across are Louis Browns. And no, I’m not making any money if you click through and buy any of his stuff. I’m telling you it’s the best because it is.
31. Lease Option Your Property
There are some big differences between a standard tenant renting from you and having a tenant buyer in one of your properties. Lease options are our primary exit strategy with our properties for many reasons.
Check out 3 Reasons Why Lease Options are Our Primary Real Estate Investment Selling Strategy.
And for some marketing tips, 10 Great Ways to Find Lease Option Tenant Buyers.
32. Limit the Cash You Tie Up in Your Properties
Less Cash in Deal = Greater Return on Investment
More Cash in Deal = Greater Risk
33. Find a Great Property Manager
It can be a great experience to manage your first few properties on your own but property managers are worth their weight in gold. We manage all of our lease options and have a couple different property managers handle our rentals. Typically, you can expect to pay 10% of the gross rent to property managers. We pay one of ours 8% and the other 10%.
34. Secure Financing that Works with Your Exit Strategy
I’ve written an entire post on the subject here so no need to be redundant.
Check it out, Real Estate Investment Financing Strategies : What is Your Exit Strategy
35. Negotiate Seller Financing
First off, NEVER use the terms “seller financing” or “owner financing” when negotiating with homeowners.
Check this out, Real Estate Investment Financing Strategies : How to Get Seller Financing
This is just a small primer to the subject. My business partner, Dusty Keefe, is the man when it comes to negotiating seller financing. You may not have noticed it yet but we just added an “Ask the Expert” page on the site. If you’ve got any burning questions, let us know.
36. Stay Abreast of Real Estate Law
By networking with local investors you will most likely here about any new legislation that would affect your business model. You can also ask your accountant to update you when they hear about new laws.
37. Buy Property in a Modest Price Range
This may seem vague but I will use an extreme to illistrate.
For Example: If you get a good deal on a 1.5M luxury home and buy it for 1M, that’s great and all but be careful. Consider the worst possible scenario. When you are dealing with properties in higher price ranges, you have a much smaller pool of buyers and your equity spread can disappear in a hurry.
38. Learn as Much as You Can About the Things You Delegate
When you hire out work that you do not know how to perform yourself, you stand a chance to get taken advantage of especially when you are a beginner.
Writing this reminded me of the first 5 or 6 heating and air estimates that we got from various contractors our first year investing. Every house that we bought “needed” an whole new unit. Didn’t matter who we asked or what the unit looked like. We finally wised up and learned some things about heat and air units.
39. Have an Asset Protection Strategy
There are many different approaches advocated across the industry. We are partial to using land trusts to protect our assets.
If a tenant ever slips and falls at a property we own and goes to an attorney to seek out their options, they will reluctantly find out that the only thing the trust owns is that one house. Unless the tenant has a lot of money they want to blow, the attorney wouldn’t have any reason to take the case.
Read up on these two posts below for more info:
Utilizing Land Trusts for Asset Protection as a Real Estate Investor Part 1
Utilizing Land Trusts for Asset Protection as a Real Estate Investor Part 2
40. Bring in a Credit Partner
Don’t have good credit, just find someone who does. You can provide the expertise, time, labor and management in exchange for someone else’s good credit.
41. Find a Mortgage Broker You Can Trust
I hate when you barely get it out of your mouth to a mortgage broker about a potential loan, and they are already telling you that they can get it done. All that I want is someone who will honestly give me a breakdown of what the options are and the likelihood of each.
With the mortgage industry changing the way it has lately, I can sympathize with them a little bit, but this has been going on as long as I’ve been in the business. Find a mortgage broker that levels with you and doesn’t promise the world.
42. Stay on the Real Estate Investing Sidelines, Don’t Invest, and Cling to Social Security
Not something I suggest but it would reduce your risk as an creative real estate investor. Real estate investing is definitely not for everyone. This is evidenced by how many people get in and barely get back out.
It amazes me the number of individuals I’ve seen “give it a try” over the years. By not committing to their real estate success, they are committing to its failure.
43. Use a Rock Solid Lease Agreement
As a landlord, you deserve to be protected to the utmost and that’s what a rock solid lease will do. I already told you who I think has the best paperwork in the business so if you missed it, you’ll just have to read the post again.
44. Know How to Protect a Deal while it’s Under Contract
In a recent post I stated, “If you do not know the secret to protecting deals you’ve contracted, it is not a matter of whether or not you will lose a deal to another investor, it’s a matter of when.”
Check it out, How I’ve Made Hundreds of Thousands of Dollars with this Creative Real Estate Investing Secret.
45. Be Flexible and Open Minded
You will especially need to adhere to this tip if you didn’t follow #8. Soooo, prepare to be flexible. A close minded person will not see the abundance of opportunity throughout the market. By opening your mind to an infinite amount of possibilities, you stand to profit from an array of areas throughout your business.
Remember: It’s risky to be rigid to a specific plan or way to go about business. Couple that with close mindedness and you no longer have any options.
46. Buy Property Way Under Value
This may sound like common sense but don’t forget about how many speculators entered the market during its peak and based their decision solely on potential appreciation.
Check out Our Buying Criteria.
47. Have a Well Connected Attorney on the Team
We have been in court plenty of times for evictions but have fortunately steered clear of lawsuits. People are so quick to file suit for anything these days.
I remember reading about a survey that was done at the turn of the 19th century and again several years ago. They asked people the question, “If you were to get rich, how would you do so.” At the turn of the century, the number one response was to build a business. Recently, it was to sue someone.
In other words, get a good attorney!
48. Give Yourself an Out in Your Purchase and Sale
This is very simple. Write in the special stipulations, “Subject to partner’s approval.” No one ever said that your partner had to be a person. Maybe your partner is your dog and if you end up not feeling good the deal, neither does Fido.
49. Commit to Being a Lifelong Student of Creative Real Estate Investing.
In addition to books, seminars, and courses, there are a tremendous amount of resources on the web.
Here is a short list of a few websites that I check out regularly:
RealEstateInvestor.com
BiggerPockets
theREIbrain
TheCreativeInvestor
Bryan Ellis FreeRealEstateTraining
JP Moses Real Estate Investing Tips Blog
Scott Roemermann’s REI Blog
50. Get a Great Agent on the Team
A good real estate agent can bring a lot of value to the table. I have always been all about delegating everything that I possibly can to professionals. I consider myself to be a professional investor . . . not a professional real estate salesperson. I do not want to do what they do.
And like Robert Kiyosaki says, “Don’t be like most people who want to stiff people who offer their services to you in the asset column and overpay people that serve you in the expense column.“
You get what you pay for and that’s why you should pay the professionals that serve you well.
51. Call Tenants References on Their Application
Even though people typically put down friends and family as references, you would be surprised. Call their references and you’ll save yourself many headaches. It’s an easy thing to do so just do it.
52. Buy Property where the Rental Rates Support Your PITI Payment
Going back to that worst case scenario thing again, if you have to hold a problem property, at least the rental rates support your monthly payment.
53. Have the Property Inspected
This could mean getting it inspected by a general contractor, home inspector, pest control company, etc. There are plenty of real estate investors that buy property site unseen, but I don’t recommend this strategy if you want to minimize risk.
54. If you Plan to Flip a Property, Have the Ability to Hold it if Need Be
If you are financially able to hold any property you buy indefinitely, you’re in a great position. This may not always be possible but it will greatly minimize your risk.
55. Network with Local Investors
There is about a 90% chance that there is a local group of investors that meet on a regular basis in your hometown. Investors usually have one of two mindsets. There are those that think that every other investor is their competitor and then there are people like me, who think of every investor as a potential partner.
We have worked with most of the active investors in our community and get a ton out of it. We’ll pass a deal on to one of our investor friends for a wholesale fee, and then they’ll fill one of our properties with a tenant that doesn’t fit what they have available.
WIN-WIN!
56. Have Your Closing Attorney Hold the Earnest Money When Contracting Properties
Our contract specifies that earnest money can be paid by check or promissory note, both of which are held by the closing attorney of our choice. Remember, we are the ones putting everything on the line to help all of the motivated homeowners out there. Protect your interests first!
57. Buy Property That Has At Least 3 Bedrooms
2 bedroom houses have ALWAYS taken us longer to fill or sell than 3 bedrooms.
The majority of households cannot live in that small of a house. I like to always position myself so that the majority of the marketplace wants what I have, and the majority of the marketplace doesn’t want to live in a 2 bedroom house.
You can easily minimize your risk in creative real estate investing by taking this tip. If you come across a 2 bedroom that looks like a great deal, get creative and see if there is any way to add that coveted third bedroom.
58. Pay Sellers Their Equity Over Time
Does this remind you of another one of the tips that we’ve already gone over?
I hope that it does. If so, you’re on the fast track to building massive wealth through real estate.
59. Hire a Creative Real Estate Investing Coach or Mentor
I have been in several real estate investing mentoring programs since I got started and continue to educate myself on a daily basis. It’s a never ending process in my mind.
Having a mentor who has seen the ups and downs of the market and that has made the mistakes necessary to become successful is invaluable. In the real estate investing game, one mistake can mean losing tens of thousands of dollars or one tip could mean $30K in your pocket next month.
Check this out if you think that a coach could benefit you. There a many programs available on the market. Find the one that is right for you.
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Well, that’s it for the 59 “Must Know” Tips in Creative Real Estate Investing to Minimize Risk and Maximize Returns. If I missed anything, please add it to the comment section. Let’s see how many more you can come up with.
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