If there is one thing any real estate investor can tell you, it’s that there are no guarantees in this business. No matter how big or successful your investment business becomes,at some point in time,you are going to suffer losses. Whether it’s a property that underperforms or you take a losson a particular propertyyou hadexpected to profit from, these things do happen. Why? There are several reasons, including the fact that as real estate investors, we have no real control over the market. The level of success your investments will reach is determined by theeffort you put out and your willingness to refrain from slacking off. Here are a few tips that might when you think you have a dealthat feels like it might be heading south.
1. Don’t Stress Over Your Earnest Money
When you put a few thousand of your hard-earned money down on a property, it is far to easy to get caught up in the moment. Many investors will close on a property even after they realize it’s not a good investment. Why? Because they don’t want to give up on their earnest money.There are times when it makes more sense to walk away from the deal and take a small hit than to end up with a property that is going to turn into a cash vacuum. Make sure any contract you sign has an “escape clause” built into it, just in case you need to walk away.
2. Talk to Others About the Deal
If you have any doubts about a deal, there is nothing wrong with running the numbers by someone else. Maybe another broker, a mentor, even another investor to see what they think of the deal. An excellentway to look at thiswould be to talk to a hard money lender. If they tell you that they wouldn’t loan you money on the deal, it’s a pretty good indication you should rethink your position.
3. Know Your Walk-Away Point
No matter how you look at it, you are in the business of investing in real estate to make money. In order tothat, you have to spend less on any property you buy than you can sell it for. If you start offering too much for a property, or you have to sink too much into rehabbing it, you are going backward. Set your walk-away point and stick to it. Don’t be afraid to walk away; therewill be another deal.
4. You Need More Than a Plan A
Investing in real estate is risky, no matter howlong you’ve been at it. It pays to have more than one plan of action, just in case things change. For example; you purchase a property, invest your time and money rehabbing, and the market takes a sharp turn south. You could:
- A– Sell the propertyand take the financial hit.
- B– Consider renting the property while you wait for the market to come back.
While there are other options, including sellingit on lease with an optionto buy or selling it using a land contract, renting may, in the end, prove to be your best option if the market is expected to remain down for any length of time. The more exit strategies you have, the lower your risk of taking a loss are likely to be.
Being in the real estate investment game has its share of risk, andthere is going to come a time when the property that looked like a great deal at first starts heading south. Hopefully, these tips will help you work your way through such a deal and still come out smiling on the other side.