Turning a profit on a deal should be the number one priority for any investor. After all, making money is the name of the game. It is easy to get caught up in swinging for the fences and trying to hit a home run, but the big picture must be taken into consideration. If you can temper your enthusiasm and pursue only the best of deals, your business will be much better off. While a slow and steady approach can be boring, the alternative is waiting for a big deal that may never even come. Even worse, if you lose money on a deal it could take months, or years, for your business to recover. It is important to remember that even small gains are big wins in the real estate investing.
Grinding out profits on every deal takes patience and due diligence. This usually starts with looking for deals in the right places. The source of your deals will go a long way in determining just how risky they may be. If you get your deals from the MLS or with the aid of a realtor, you may not see massive gains, but you will find solid, conservative deals that will keep your business moving forward. If you strike up a conversation with someone you just met at an investment club and they tell you about an opportunity that needs immediate action, you may not be working with the most credible people. Sure, the potential for large gains is there, but it can also wipe your business out and force you back to square one.
There is a difference between cheap and being savvy. If you are cheap, you are unable or unwilling to spend money that you need to grow your business. If you are savvy with your money, you know the best ways to make that money work for you and your business and you also know where to cut corners. Being savvy with your money will help grow your business and lead you on the path of accumulating wealth. There is a lot of work that goes into every deal, but if you have the mindset that you are trying to add to the pot, you will accept the work that is needed. On each deal there are multiple ways you can trim the fat and save money without being cheap. These savings are a large factor in determining profits, especially on deals where there may not be huge spread available.
There are many investors that dive headfirst into a deal without thinking about the risks associated. They see the potential profits and how much money they can make, but they don’t think about what can go wrong. If you don’t take the time to consider the negatives, they will come back to haunt you. Changes in the budget, an unexpected vacancy, the property not selling or delays in the rehab are just a few of the many things that can happen on a given deal. Thinking about the negatives does not make you a negative person – it makes you prepared. If the chances of any of these negative things happening are greater than the potential profits, you should consider walking away from the deal. At the very least, you need multiple contingency plans to deal with every possible negative scenario you may face. The more prepared you are for every situation you face, the more likely you will not make a bad problem worse.
Whether you are working on a wholesale deal or a gut rehab, there is a lot of work involved in every deal. Some deals require more attention than others, but all of them need your time and attention. In a perfect world, you would close one deal that nets you $25,000 over five deals at $5,000 each. Unfortunately, the business doesn’t work this way all the time. The more realistic scenario is that you take what you can get and move onto the next deal. Greed can quickly derail even the best investors. You may have visions of dollar signs based on what you see on TV or hear at local meetings. You need to realize that each scenario and investing area is different. What happened to a fellow investor on one deal may not happen on yours. When you are presented with a strong offer, you may need to just take it and move on rather than waiting for a top dollar offer that may never come. That same applies in every area of your business. You don’t want to give away the farm, but if you shoot for the moon you may be left with a property you can’t get rid of for a very long time.
The key to investing is to learn from your mistakes and never make them again. If you have reserves in place and an expanded portfolio, you can endure a loss and keep your business moving forward. If you run your business, only thinking of the next deal, it will steer you in the wrong direction. If you take what you can get and continue to grow your business, you will eventually find bigger deals based on your contacts and your network. Until you get to that point you will need to work on several smaller deals and grind out profits. Hitting singles may be boring but it sure beats striking out.
