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How one real estate investor’s indecision cost him close to $80,000

How one investor's indecision cost him close to $80,000 blog by Larry ArthI was reading an article the other day about the one characteristic that all millionaires have in common: Decisiveness. Wow; one characteristic.

They all made prompt decisions and remained confident and went on to build around that decision. My interpretation is: the focus on being decisive made all the difference.

It got me thinking about my successes, and in reflecting on them, I can concur my best decisions were made promptly and confidently. I remembered a recent phone call from an investor from the United Kingdom. We started

Larry Arth's blog on 9 keys to equity buildup in real estate investment
When Larry was decisive and made the decision to convert this fourplex to condos it generated $245,000 in equity buildup when the conversion was completed and refinanced.

our conversations back in 2011. On his last call, he stated he was finally ready to make a purchase and felt he should do so before he missed the opportunities.

This gentleman has been diligently evaluating investment property and wanted the best possible price with the highest returns possible — a fair and admirable requirement.

However, instead of being decisive, he was always looking for better deals.

He thought waiting a little longer might present him with a better time to buy. Or he was second-guessing whether he should be buying in the Dallas market or the Atlanta market first. He looked through all the supporting information, as he wanted to make sure he was making the best decision.

While evaluating the information, he was always sidetracked by the redirecting information. (He fell into what I call “chasing the next shiny object.”) I know reading this may sound ridiculous, but we do find many people get caught up in this “chasing the shiny object” dilemma instead of making decisions. Often they never make a purchase at all. If they do, they wind up with an investment inferior to the many they let slip away through their “analysis paralysis.”

So how much did this delayed decision cost him?

Loss of Equity: $25,000

The typical property price for a three-bedroom, two-bath, two-car garage, freshly renovated turnkey home was around $75,000 to $80,000 when I first started talking with the gentleman. Today the same properties are selling for around $100,000 to $105,000 and higher.

Loss in cash flow: $6,000

As prices rise, cash flows and cap rates are reduced. 10 percent to 12 percent cap rates are replaced with 7 percent to 9 percent rates. Cash flows, which of course vary based on acquisition terms, are running around $100 less per month. Based on a typical investor holding a property for at least five years, that is a loss of $100 a month in extra cash flow for around 60 months — or $6,000. This loss of $6,000 does not even factor in the higher cost of financing, as interest rates have increased in the past four years and that, of course, will also cut into cash flow.

Loss in exchange rates: 49,000 euros

This one may not resonate with us Americans, but for all our foreign friends buying overseas, they gain leverage with favorable dollar conversion rates. In 2011 when we first began conversations, the exchange rate was about 80%. (It took .80 euros to buy 100 dollars.) So in 2011 the average home at $75,000 would have cost him about 60,000 euros. Today the price of the property jumping up to $100,000 and the conversion rate of the euro over 109%, the cost for that same property to him is now 109,000 euros. That represents an additional 49,000 euros which is a price that is close to double the original.

Loss of doubling down

Now as any savvy investor knows, when you buy a small cash flow business that grows in value, the plan is to secure a great investment, let the cash flow and equity build up and then repeat. With this four-year delay and loss of around 80,000 euros, he could have easily been able to leverage this property and obtain a second one.

As I processed this while reading the article, I had further anxiety knowing this gentleman is not exactly the exception to the rule. A small percentage of people actually make the quick decisions that this article was talking about. The larger majority indeed spend so much time processing information it becomes difficult to move forward. I suppose this is why we have far fewer millionaires.

Now that he was ready to buy, he quickly realized that the reduced cash flow and the higher prices were not as attractive as he was first seeing. When he revisited the currency conversion, he promptly put the brakes on. This is where he realized he totally missed the best buying opportunities. Having learned a very valuable lesson in his indecision, he is now waiting for the next best market to emerge and hoping for a rebound in currency favoring him so he can take more decisive action.

Finding the balance that works for you

I believe the larger majority of us all have the safety factor built into us that prompts us to take precautions.
This trait can be a double-edged sword if you use it as a tool to justify your fears. This stalls you out altogether and the results are what you just read.

The balance is learning a process for yourself that you can duplicate and that you are comfortable with.
How do you wish to evaluate markets and the properties within those markets?

As you determine what works for you, do this and apply it to all your evaluations and then you are on your way to making confident decisions.

Visit Larry’s site here.




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