React? Or Respond? | Think Realty | A Real Estate of Mind
Insight Weekend Investor

React? Or Respond?

How you deal with challenges and unexpected issues will determine your level of success in real estate investing.

There are definite habits and traits that separate part-time and beginning real estate investors who are successful from those who are not. There are so many, in fact, that we can’t cover them all in one article. So let’s just focus on one contrast in particular. As is often the case, it is applicable to something that I have personally experienced, either as a part-time real estate investor or now as a full-time real estate investor and HomeVestors franchisee in Dallas.

Let’s think back to the tragedy that took place on Sept. 11, 2001. We all became very familiar with the term “responder.” These were the paramedics, police officers, firefighters, etc., who were first on the scene. The connotation that quickly developed was that a first responder is someone who is brave, deliberate, provides solutions, takes action and, in the case of that tragedy, saves people’s lives.

Contrast that with the scene we watched, on several occasions, earlier this election year. Many of us saw or heard about the onstage actions of the candidates debating to be the next president of the United States. Many of those candidates exhibited traits quite different from those of a first responder. What we were seeing instead were characteristics of a reactor. Those candidates were reacting to questions, rather than responding, and often in a manner that was panicked, frustrated, confused or even hostile if they were confronted or challenged by one of the other candidates on the debate stage.

You can see the connotation that creates for a reactor. A reactor’s behavior typically is very negative, not very deliberate, not very calculated and very haphazard. It rarely accomplishes anything or provides any solutions.

REACTOR OR RESPONDER: TOTAL OPPOSITES

The question I have for you as a part-time investor is: Are you a responder, or are you a reactor? Are you a brave, calculating, determined solution provider? Or do you act in a haphazard way, retreat, get frustrated and act negatively?

I have found that the successful real estate investor exudes the characteristics of a responder. Let’s talk about that in the context of some real-life situations that you are either already experiencing as a part-time investor or that you will experience very soon. Based on my experience, you will ultimately encounter each of these scenarios at some point in your career, whether you are just preparing to become a real estate investor or you have already started. What’s most important is how you behave when faced with these challengers, obstacles and unexpected circumstances.

SCENARIO #1: NO DEALS

Let’s start with the most obvious, typical challenge you are going to face as a real estate investor. There will be a point you will probably find yourself saying, “There are not enough good deals out there. I cannot find any leads. I cannot find any deals. I cannot find any investments.” The question is, do you respond to that challenge, or do you react to that?

The reactors throw their arms up, criticize the circumstance, retreat, surrender or quit. They blame somebody else, whether it’s their competitors “who are paying too much, so therefore there are no good deals out there for me” or the market, which has driven the prices up too high and run off all the buyers. They will find just about anyone or anything to blame—except themselves.

In stark contrast, the responders—when faced with the challenge of limited deals or leads—are going to look at their marketing and then correct their course. They will say to themselves, “Do I need to market differently? Maybe more direct mail is what I need.” They may choose simply to do more marketing: “If it’s getting tougher to find the deals, then I am just going to have to work harder, spend more and market more.“ They may improve their networking. They may increase their follow-up. They may look for new sources for deals: “I have only ever bought short sales, but maybe I need to look at foreclosures, or maybe I need to start marketing directly to sellers.”

They are going to come up with a new exit strategy. Maybe they only did fix-and-flips, and maybe it’s time to do seller financing. They are going to look for new partnerships. Maybe they encounter somebody at the local REI club meeting with whom they can partner and learn, and then that will open up new opportunities for new leads or new deals.

They are going to seek out more training and education. They are going to do a lot of different things. They may even seek out a formal mentor to give them the new ideas, the skills, the talents and the resources to get through that challenge.

Those are the characteristics of a responder. The responder moves forward; the reactor will fall backward.

I’ll give you a quick tip that applies to this: Be persistent and consistent with your advertising. It cannot be negotiable. It’s not something to pull back on, or abandon. When the going gets tough and the deals get fewer and farther between, you have to keep your advertising going, and you can’t let up when it comes to investing your time and money and sourcing those deals.

SCENARIO #2: THE TROUBLED REHAB

Another example that you will ultimately come across is the troubled rehab. For the reactors, if that rehab project gets tough and it starts going sideways, they will end up cutting corners to save money. Or perhaps, they just keep throwing more money at the problem. Maybe the rehab is more expensive, or maybe the house needs a roof that was never anticipated, or maybe it’s taking much longer than it was supposed to, or maybe a contractor is not working out as had been hoped or planned. The reactors are going to behave in negative ways that probably will only compound a negative outcome.

On the other hand, the responders are going to take a calculated action. Maybe they are going to replace that nonperforming contractor. Or maybe they see they are going to have to reduce their profit margin. “OK, so it needs a new roof. Well, luckily I bought it correctly, so I have enough room in my numbers to be able to replace that roof, and I will be fine. I may not make as much, but I will still make a profit on the project.”

Or maybe those responders are going to change their exit strategy:

• “I’ll switch gears and make this a fix-and-flip and sell it full retail.”

• “Maybe this will just be a ‘wholetail’ deal where I will sell the home on the retail market, but it won’t be fully rehabbed.”

• “Maybe I will wholesale it as-is. I am going to stop right now and not compound the problem. I will sell it off with the work that has been accomplished at a much lower rate to a cash investor, and he can finish the project.”

• Or maybe it becomes a rental.

• Or maybe the responders simply stay the course, overcome the obstacle and ultimately produce the results they are looking for.

I’ll give you another quick tip based on my own experience for that time when you do come across that challenging rehab project. Maybe you find yourself in the scenario where you paid for a house and you know immediately after you close on it that it is going to be a challenge. Never try to rehab your way out of that bad buy.

You are going to have to make some quick decisions, though. “Wholetail” it, wholesale it, keep it as a buy-and-hold as a rental perhaps, but do not throw more money at it and try to rehab your way out of it. You are guaranteed to find yourself with a troubled rehab project.

SCENARIO #3: GETTING STARTED

I saved this scenario for last, because it’s important. Let’s determine whether you are a responder or reactor when it comes to just plain getting started as an investor. Are you sitting on the sidelines right now? Or did you dive straight in and become that part-time investor you want to be?

You are a reactor if you have found all the reasons not to take action. “I’m too busy. It’s too risky. I don’t know enough. My friends and family say not to do it. It doesn’t work.” Or, “I heard a bad story about investing.”

You are a responder if you took action to become an investor and bought that first property.

Here is a quote I have cited in the past that I find very fitting: “Go as far as you can go, and when you get there, you will see farther.” This is a great way to overcome the unknowns of real estate investing. You will be shocked when you go as far as you can go—or as far as you think can go—and then see how much clearer the next steps are. The things that you don’t think you know how to do will be much easier and much more doable when you actually face those challenges or those tasks.

The first investment property I ever purchased was a disaster. I overcalculated the value of that house—the after-repair value. I underestimated the repair cost. The house was vandalized soon after I purchased it. It took forever to sell it after that. I even had title issues come back to haunt me long after I had sold the house, and it was owned by somebody else. So everything that could have gone wrong, did go wrong.

If I had been a reactor, I would have given up at that point. Let me remind you that was the first house that I ever bought. I would have thrown in the towel and quit, but instead I did many of the things I have discussed in this article. I responded to that challenge. I kept advertising. I kept investing. I kept learning. I adjusted my exit strategies on future houses. I applied what I had learned.

I could have gotten disgusted and said, “This doesn’t work,” and thrown my arms up and quit. But I knew I had to respond to the challenges of that first investment property with calculation and by being deliberate, determined and focused. I look back on that property today only recognizing and appreciating all the valuable lessons I took away from it.

Reaction is a reflex. It’s not intentional. It’s not planned. It’s not controlled. And it’s not deliberate. Just like that political debate we talked about.

Instead, be a responder. Response is calculated. It’s deliberate. It’s purposeful. It’s committed. And it’s intentional, just like the characteristics of the first responders in the 9/11 tragedy.

When you do these sorts of things—whether you are getting ready to start or you have already started—you will find the success you are looking for in your real estate investing.