What they don’t tell you is where problems lie

7 things if only I knew...or they don't tell you where the problems lie blog by Larry Arth for Personal Real Estate Investor MagazineHave you ever evaluated an investment property and were very excited about the purchase?

Everything looks great on paper. The property looks good and talk of “hurry, before it is gone” prompts you to make an uneducated decision.

I hope you are shaking your head “no” here.

Having worked in this industry for many years and attended many investor club meetings, I hear many people express this sentiment. I hear many a stories that begins with, “If I only knew… .”

7 things if only I knew… comments I regularly hear from frustrated buyers

  1. If I only knew the property was on well and septic and I would be assessed thousands of dollars within a year of buying the property, I could have avoided the negative cash flow.
  2.  If I only knew the HOA on these town homes (or condos) were operating in the black and I would be assessed big time to make the HOA solvent, I could have avoided the negative cash flow.
  3. If I only knew the population and jobs were disappearing from the area and I would be struggling to find tenants, I would have thought differently about making this purchase.
  4. If I only knew they were making a four-lane road out the back door of my new purchase, I never would have bought the property.
  5. If I only knew the house had thousands of dollars’ worth of hidden termite damage, I would have passed on this property.
  6. If I only knew this local market was overvalued and home prices were stagnant (or worse yet, falling), I would have chosen a different market.
  7. If I only knew I bought the property in the midst of a sellers’ market, I could have avoided being stuck in a situation where I am forced to reduce rents just to keep the darn unit occupied.

Hint: you can make a checklist from this.

Often my investor clients will express concern about these items, as they want to avoid falling into the same challenges. I simply say, as long as you are aware of these challenges, you can easily avoid them. Make a checklist and do not be swayed or discouraged.

I always suggest to my investor-clients that they focus all their due diligence on the sustainability of the returns and the sustainability of potential appreciation. When this becomes your top focus, you will do the proper diligence and ask the right questions.

I suggest to them there are three ways of thinking.

No. 1 – How the seller thinks

When someone goes to sell you a property, of course he or she will tell you everything good about the property and the local market.
All the great things the seller tells you may very well be true. He or she will tell you everything you want to hear, which is all the reasons you want to buy the house and the great ROI the property will generate.

No. 2 – How a buyer thinks

Often the buyers are enlightened to this great stuff they want to hear and forget about finding the things they need to hear.
Every day, people ask me about a property or a particular market.
I ask why they chose that property and why they chose that market so I can understand what is propelling their decisions in that direction.
Typically a person is propelled to make an investment based on all the great things they hear about a property and its market and, of course, the lure of the great returns.

No. 3 – How seasoned investors think

Seasoned investors think locations and long-term sustainability.
Emotions are typically replaced with logic-based decisions. The process is very simple to them, as they have their criteria and checklist they wish the investment to accommodate.

They compare property investments against others and seek out the best deals, then negotiate a better deal. If a deal that is offered to them is substantially better than others in the area, they understand there is probably a logical reason and they seek to find out why rather than be lured by attractive returns.

I continue to see people so motivated by the great ROI that they fail to see what they need to see. They fail to compare the investment to others in the area.

You want a great deal. But if the deal offered is substantially better than others, you want to know that, as that is the red flag that will propel you into deeper diligence.

It is what they do not tell you that tells the story.

Visit Larry’s site here.

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  • Larry Arth

    Larry Arth is the founder and CEO of Equity Builders Group, a Florida-based real estate investment group. A 36-year veteran of real estate investing, Arth also is an international consultant and speaker who each year assists hundreds of investors, both foreign and domestic, in realizing their investment potential. He analyzes locations for economic strength and for the largest and most sustainable returns and, most importantly, sustainable turnkey investment. His focus is offering turnkey investments to the passive investor. Visit his website at www.howtobuyusarealestate.com.

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