How a Reality Check Made Me Over $100,000

June 29, 2009 | By | Reply More

Reality Check Real EstateIn today’s post, Julie Broad of RevNYou tells us how a reality check has made her over $100,000 . . .

The best real estate investors can spot opportunities where others just see problems. They can see past bad d├ęcor and overgrown yards. They see trends emerging and can get ahead of them to make money before most people realize the trend is here.

Sometimes experienced real estate investors miss really obvious opportunities.

I know, because I almost missed out on a deal that’s made us $100,000 and counting!

I’m talking about a little house that looked more like a tool shed than a dwelling. It’s just a 600 square foot wood structure that sits on a concrete slab – there’s no basement and no garage.

When my husband took me to see the property, I had visions of constant repairs and never-ending tenant troubles. I really couldn’t imagine living there and figured it was a waste of time to even think about buying it.

But my husband told me to do a reality check – because there were a lot of reasons to like the deal. That area, and specifically within a block of this property, is being totally redeveloped with mixed use properties. We were going to be able to pick the property up without using any of our money, and it was one of the cheapest properties we’d ever seen listed in the City.

Five years later, that property – which essentially is a large chunk of land in an emerging area – has more than doubled in value and the rent has covered all the costs. We’ve only spent one afternoon there fixing the porch but we’ve yet to have to put a single dime into it.

It’s just as easy to get excited by a property that isn’t really a good opportunity as it is to miss out on the ones that are. To try and make sure you’re focusing on the right deals, you can use these four reality checks:

Reality Check One: Who is Your Target Market?

I’ll be honest – there’s not a big market of tenants waiting to rent a property like our little shack. I know I couldn’t imagine myself living in that little shack which is why I almost passed on the deal. But I was not the target market for that rental.

The tenant has been there since the day we bought it. He loves the large yard. He doesn’t mind the exterior appearance because it’s cozy inside and the rent is cheap for the privacy and space he enjoys.

If the property is a good fit for your target market, it doesn’t matter whether or not you would live there.

Reality Check Two: Are You Emotionally Involved?

Emotions weren’t involved in this particular purchase, but it’s something to be wary of. If, at any point in the negotiations, you feel that you can’t walk away from the deal, you need to take a step back and review everything! When your emotions are involved, you can’t make rational decisions.

Reality Check Three: Do the numbers really say it’s a good deal?

My Dad was speaking with his accountant about one of his property’s cash flow. He asked the accountant what the numbers said about the profitability of the building. The accountant said with a smile, “What do you want them to say?”

In other words – there are plenty of ways to make a property look like a good deal. It’s up to you, as a buyer, to make sure the numbers really say what the seller says they say.

In this deal, the numbers sold me. The rent covered all the expenses and left a small cushion for surprises. Make sure before you purchase the property by checking the leases, getting copies of the bills direct from the vendors and checking market rental rates for the area to make sure the current tenants aren’t overpaying.

Reality Check Four: Are You Judging a Book by Its Cover?

Many opportunities are missed because a property makes a negative first impression. The best deals are often those that look rough but can be repaired and restored for little cost and effort. Granted, our little shack needs to be completely rebuilt to maximize its potential – but had my husband allowed me to judge it strictly on its looks, I would have missed a deal that has (so far) grown our net worth by $100,000.


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Category: Real Estate Investment Buying Strategies, Tips and Tricks

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