How To Get Out Of Your Own Way?
From our perspective as a hard money lender and real estate investor, virtually everyone we talk to expresses their desire to buy real estate, flip real estate, build a rental portfolio, or participate in some way with real estate investing. In addition to financing requests, we receive inquiries monthly from people who want us to joint venture or partner with them on opportunities. Considering that, we see virtually every kind of strategy possible and we would like to discuss the importance of ‘getting out of your own way‘ when it comes to seizing investment opportunities when they present themselves. Here are some anecdotal stories we can learn from:
This investor approached us interested in partnering with us on an investment SFR or small multi-family project to flip, depending on the opportunity. We would’ve been participating as an equity partner with the possibility of financing as well. The goal was to flip the property, but the backup plan was to hold it as a rental. We identified a property, the numbers penciled out, our prospective ‘partner’ agreed. All was well. When it came to that moment to pull the trigger, here are a few of the excuses that we started to hear:
“The kitchen might need to be reconfigured.”
“We might need to hire some design professionals.”
“This is a lot of work.”
Obviously we immediately moved forward without this ‘partner’ but if you think about these type of comments, you must wonder, did this person actually believe that we would find a flip opportunity that penciled out (20%+ cash-on-cash return) where there wasn’t a lot of work involved or where design professionals were not needed?
This investor originally approached us to purchase any properties that we may have owned after a foreclosure. Generally we wouldn’t hold any sort of inventory, but we talked and he expressed his utter despair at being unable to find properties that penciled out for him. He spent countless hours, over several years, searching and analyzing properties to find nothing that worked for him. We started speaking to him about what he was looking for and his issues were obvious. He was looking for the best of the best locations with cap rates from 2008. He was going to continue to spin his wheels until he realized that his goals were skewed. He had plenty of money but would not move forward unless it was the perfect deal and that, for the most part, does not exist.
This investor expressed interest in an A+ flip property in Laguna Beach. Purchase price was $1.25M. It needed $150k-$200k in work. We issued a loan approval. All was good. He saw the property and at the last minute decided not to move forward. 9 months later the investor who bought it had just sold it for $1.9M. We sent the first investor the transaction history and his response was, “I wish you had monitored it for me.” It was laughable. Why would we had monitored it for him? He couldn’t pull the trigger when he needed to and he lost out on a great deal.
There are many more stories that can be detailed here, but we hope the point is clear. People generally want to invest in real estate opportunities, by themselves or in partnerships, but they have to get over themselves and pull the trigger when it’s time to move forward. There is risk in every transaction. They will not all be home runs. Making unreasonable excuses at the last minute to your partners is a sure-fire why to alienate those partners and not get approached again. If you want to develop partnerships and good referral partners, you need to develop clear parameters as to what you’re willing to invest in and you need to be able to analyze prospective opportunities quickly. You also need to be honest with your partners. Investor One above said he didn’t want to do the deal because ‘we might need to hire a designer’?! That was a cop-out and when you make an excuse like that, your partners won’t come back to you again for the next deal.