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Adjust Your Thinking Before Your Numbers

Published on Monday - December 30, 2013

There is not much that will get investors into trouble quicker than not trusting the data that is presented to them. You can spend days evaluating a property, but if you don’t trust your work, you will end up in trouble. Your love for a property should only go so far. If you need multiple things to happen in order to get your desired result, you may be asking for too much. This does not mean you have to be so strict and regimented that you limit the types of deals you look at, but once things change out of your favor, it is time to move on to the next property.

There is a big difference between making a reasonable assumption on a property and hoping things fall into place. If there are recent sales in the immediate area showing values around $200,000, there is not much you can do to get that upwards of $250,000. The numbers may make sense, but how you are getting them is unrealistic. Sure, there can always be shifts in the market or shifts in buyer demand, but those will not yield the types of results you need. If you don’t trust the numbers and recent data, you will be staring at an uphill battle just to break even.

It is never easy to walk away from a property and a deal that you spent weeks on. The sooner you realize and accept that this is part of real estate investing, the better off you will be. Working for yourself is not like the typical 9 to 5 job and often times there will be work done that is unrewarded. Losing time is one thing, but losing money is another. You can make almost any deal look good on paper if you plug the right numbers in. Knowing which ones are real and which ones are a pipe dream makes all the difference in a prospective deal.

The best way to break down your numbers is to look at each one individually. You can throw out a random number for repairs, but how realistic is that number. Do you have a firm quote and do you know that your number will cover everything that needs to be done? Are you basing your ARV on solid comparables or assumptions on where the market is headed? Every item on your spreadsheet should be given a second look.

After you reevaluate your numbers, it is wise to talk to either a realtor or fellow investor that can provide a second opinion. It is important to listen to their opinion and not be so stubborn that you will move ahead with a bad deal against better judgment. Walking away from a deal is often the best thing you can do when things have changed and the numbers don’t make sense anymore. Plugging numbers in a spreadsheet often looks good on paper, but once you take ownership of the property, reality sets in and it can be a completely different ballgame.

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