If you are a real estate investor whether you are experienced or brand new, there is something that you probably determined pretty quickly. Just about the time you think you have everything figured out, everything changes.
A new year always offers us new beginnings, and now is the perfect time to look back at how the business of real estate investing has changed this past year. It’s important for you to determine what changes you need to implement this year in your business to move forward and grow your profits.
The number one challenge for most of us is how we can adapt our current business models to reflect the changing market. This answer will likely be different for everyone. If you are a buy and hold landlord your answer will be different than a person like me that is primarily doing wholesale deals at this time.
My biggest challenge for 2011 has to do with growing my buyers list and defining the types of buyers that I need on that list. Wholesalers live and die by their buyers list! Prior to the last year or year and a half, you could have a relatively small list of buyers on your buyers list and they would buy all of your wholesale deals. That has certainly changed in my area. Investor buyers are purchasing fewer homes each year. They are also looking at the numbers much more conservatively now. In many cases, they are just plain scared to buy anything that they cannot rent easily if the house doesn’t sell after it is rehabbed.
Here is an example. Let’s say you that you have a house in a good neighborhood with an ARV (after repaired value) of $135,000 to $140,000. This house needs about $20,000 -$25,000 in repairs and you are asking $45,000 for the house. Is this a good deal for an investor? Who wouldn’t be happy with a profit of $70,000-$75,000 not including holding costs?
In my area the correct answer would be; not a lot of the landlords. If they are looking for a $250.00+ a month cash flow, this deal just may not work for them if they can only get $800 per month rent on the house. A lot depends on interest rate they are paying and other variables. Anyway you look at it this is definitely a great deal for a rehabber.
So what’s a wholesaler to do?
This year I am going to have to add more active buyers to my buyers list. I have some good solid buyers on my list, but I also have a lot of people that say they are investors/ buyers that have never even come close to buying a house. I plan to compile a more detailed profile of each person on my buyer’s list so that I can better understand exactly what they are looking for. This will also help me when I am negotiating a deal. If I think a deal is going to be harder to sell, then I need to get the house at a better price to make it more attractive to the pool of investors/buyers. I will also add additional time for “partner approval” to my contract to give myself more time to sell the deal.
Since my buyers have become more conservative (and pickier) over the past year, it is essential that I buy the properties at even lower prices than before. I like to think that my negotiating skills improve with each passing year. I have definitely gotten better at walking away from marginal deals. What this ultimately means for my business, is that I will need more leads to buy the same number of wholesale deals. In order to increase my leads, I am going have to increase the number of my direct mail pieces and other marketing activities.
Managing the change will most likely turn out to be the theme of 2011. My new friend Bolaji recently posted a quote on his site by Will Rogers that said, “Even if you are on the right track… you’ll get run over if you sit still. So don’t just sit there. Get busy and create a plan for managing all of these changes and watch your business grow. And, when you get a few minutes, you might want to wander on over to Bolaji’s blog at http://www.whoisbolaji.com. You’ll find some great information there.