From REI Academy
A. To Reach Their Goals.
B. To Produce Adequate Returns for the Amount of Time and
Money Invested.
1. Concentration on Technique (Lease Option, Subject
To, Foreclosure, etc.) Rather Than on Property
Most investors new to real estate get mesmerized by a
technique for acquiring control of real property and or a
technique for turning a quick profit. These "techniques", often
taught by "gurus" at $5,000 - $10,000 for training, workshops
and tapes, emphasize no need for extended time and financial
commitment (lease option, subject to) or emphasize quick turn
profitability (foreclosures, flips, over financing). These are
analogous to the technical or chart reading aspect of stock
market investing; it doesnt matter what property you find, just
apply the technique.
The truth is that any of these techniques can be successfully
utilized given the right set of circumstances. However, they are
applicable in only a very small percentage of cases, and usually
after an extended negotiation or as an afterthought to the
property acquisition process. Successful real estate investors
concentrate on the property itself rather than on a specific
technique. This not only allows the investor to concentrate
directly on where most profitability resides, but also opens a
much wider array of potential "deals" for the investor to
consider. Further, the investor can concentrate on the much more
reliable profitability formula of "adding value", rather than on
the more suspect and ethically questionable formula of finding a
nave individual to work the other side of the real property
transaction.
2. Plan on Doing Many Deals Each With a Small Amount of
Profit Rather Than a Few Deals Each with Substantial Profit
Many investors both experienced as well as new are thrilled
with a small (under $10,000) profit on each deal. Since
unexpected expenses always seem to creep up when least expected
in real estate investing, the actual profitability of these
transactions range from half the expected profit to no profit.
In order for the investor to earn enough income to warrant the
time commitment, monetary commitment and risk involved, he would
have to participate in a large number of deals annually. And
since it always takes many negotiations to produce a single
deal, and many property inspections to find a single property
worth negotiating on, real estate investment will become a full
time real estate business. To be sure, there are people who
successfully play the low profit high numbers game; most
Homevestor franchisees come to mind. But if working 70 plus hour
weeks and buying, rehabbing and selling 50 plus properties per
year sounds like a worse life than the corporate world youre
trying to leave, you probably want to find a different approach.
In my many years investing in real estate, financing real
estate ventures, and observing successful real estate investors,
I have come to the conclusion that participating in a small
number of highly profitable transactions no only produces more
monetary success but also leads to a much more leisurely, less
stressful and more satisfying experience. I personally dont
believe any serious investor need look at any transaction with
less than a $50,000 profit, with the goal of eventually only
considering deals with a $100,000 plus profitability. If you
dont think these kind of deals are available, then read 3.
Below.
3. Working in a Crowded Arena (Single Family Homes)
Rather Than an Area with Less Competition and More Opportunity
(Commercial)
From real estate investment seminars to real estate
investment clubs to the proliferation of how to real estate
books for sale, one would think that the single family home is
the only property type available. And with the tens of thousands
of new real estate investors as well as the invent and expansion
of the franchised rehab businesses, the single family home as a
real estate investment has become a very competitive and crowded
field. Whereas just five years ago a homeowner needing to sell
his home had very few and limited options if the home needed
major repair, he now has a much larger market demand to sell
into. The homeowner can sell to a much larger choice of
investors interested in purchasing his home, he can obtain
refinancing money to repair his home even with credit scores so
low they would not have even been considered five years ago, or
he can auction his property and probably receive a cash offer at
fair market value. All this has made finding a below market
priced single family home investment like finding the proverbial
needle in a haystack.
Rather than competing in the crowded and overly competitive
single family home residential market, with its limited profit
potential and heavy time commitment, real estate investors would
have geometrically increased chances for success if they spent
the same time and energy learning about the various areas of
commercial real estate. Not only is this field significantly
less crowded and significantly less competitive, but the real
estate investor is able to earn significant returns on far fewer
transactions. To be sure, there are tens if not hundreds of
types of commercial properties and transactions; the successful
real estate investor will educate himself with a good overview
and then decide on a area of concentration. Rather than waste
time fighting for the left over scraps in the single family
residential market, the investor can be breathing the rarefied
of the commercial real estate market.
4. Having No Sustainable Plan
"I want to make a lot of money" is not a sustainable business
plan. "I want to specialize in foreclosures, lease options, and
subject to" is not a sustainable business plan. "I buy property
for cash or terms" is not a sustainable business plan. Enough
said. If you dont know how to develop a workable plan for real
estate investing buy a book on business plans, take a small
business administration course, or better yet attend my seminars
and workshops.
5. Trying to Do Deals with No Equity Contribution
Yes its possible to purchase real estate with no money. Yes
its possible to flip properties for large profit with no
investment. Yes its possible to option property for $100. That
being said, its infinitely easier to successfully participate
in real estate transactions when you as a real estate investor
have an equity contribution in the deal. When you put some money
in a deal three great things begin to happen. Conventional
lenders become interested in financing your transaction and 20 %
hard money or 30 % equity share becomes 6 % conventional
financing. Sellers. Especially institutional sellers, take you
seriously and are willing to sell their property at large
discounts. And outside investors become attracted to your deal
syndication and limited partnerships. Life becomes easier and
much more profitable.
Don Konipol
Don H Konipol has a BS in Economics and an MBA in Finance
from the University of Michigan and is a licensed Texas Real
Estate Broker and Mortgage Broker. Mr. Konipol is General
Partner of the Managed Mortgage Investment Fund LP, a private
limited partnership that invests in short term, high yield
private mortgage notes. He can be reached at 832.577.8838 or by
email at dkonipol@yahoo.com.
