Today I’m going to talk about something I learned early on in my career that I think is very important for new investors to be aware of. One of the biggest mistakes that new investors make is to act like a teenage boy on a first date, as Sharon Vornholt once put it in her interview. They’re a little too excited or too aggressive, and just come on too strong.
When you’re new in real estate, you don’t ever want to force a deal. You should never take something that isn’t really a deal and try to force it to be one. A lot of investors are guilty of doing this, and new investors in particular are so anxious to make money that they’ll do anything for it. If you do that, you’re going to end up losing money or losing your reputation. Before you make that mistake, you usually have a gut feeling. You have this instinct that the deal isn’t good, but you ignore it because you so badly want to make money. Maybe you underestimate rehab or overestimate after-repair values.
Now let’s say the numbers work, but something is just not sitting well with you. There’s something about the house that you just have a feeling won’t appeal to people. For example, I went to look at a house last week. The numbers looked something like this:
- Purchase Price: $80,000
- ARV: $180,000
- Square Footage: 2500
The house was a 5 bedroom, 2 bedroom property right on the water. On paper, it looked like a great property. But I went and looked at the house, and a couple of things weren’t looking great. The neighborhood was a little strange and unappealing–not unsafe, but not great either. The house had no front yard and not much of a backyard. It also sat right by a main road and you could hear all the noise from that road. When I went inside, I saw that while technically there were 5 bedrooms, but 2 of them could only be accessed by going through another bedroom. This means that walls would have to be moved around, and even then it might not become a true 5 bedroom. The layout was very bad overall.
I spent about a half hour looking through the house trying to figure out how I could change things, but when I left I realized that I was trying too hard to make this a deal. If I go into a house and can’t immediately completely see how it’s a deal, it’s not really a deal. Even though it looked phenomenal on paper, I had a feeling I’d have a hard time selling it. I had to listen to my gut and I passed on the property.
I had another similar situation a few days ago–listen to the full episode for the details on that one.
In those two deals, I was reminded of the fact that sometimes you just have to forget about the money and go with you gut. There are many great, safer deals out there, so don’t be careless in your excitement to find a deal.