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Real Estate Deals: Knowing Your Endgame Before You Start

Published on Thursday - July 10, 2014

Regardless of where you are in your investing business, it can be very tempting to become overzealous when new opportunities present themselves. The sheer euphoria of digging into a new deal can make you do things you normally wouldn’t. Many months later, when it wears off, you realize that you don’t have a clear idea of where you want to end up with the property you bought. By that time, you may have missed your best options and will be relegated to finding the next best thing. This can all be avoided if you start with a particular goal in mind. If you know where you want to go with a real estate deal, you will have a much better idea of how to get there.

Your goal is the basis for what you want to do, how you are going to do it and in what timeframe you are going to do it in. A deal may appear to be great on paper or from a distance, but the longer you go without an exit strategy, the more difficult it will be to get there. No two properties are the same. Each new property may have a different set of goals in which you should focus on. You can have a long term vision for what you want your business to be, but every single property is a new adventure.

After you view a new property, the very first question you should ask yourself is “what am I going to do with the property?” At this point, you need to start asking questions for every step of the process in line with your end goal. If you are going to buy-and-hold, you need to start calculating costs and expenses to get it ready. If your goal is to get in and get out, you should be looking at recent sales and current listings to give you some idea of your ARV. You need to be willing to challenge yourself and your plan every step of the way until you are comfortable, or as comfortable as you can be, that you are working on the right property that is in line with your end goal. If this doesn’t match up, there is nothing wrong with walking away from the property.

Things can always change once you start with a new deal, but if you have a clear, defined goal for the transaction, it will help to get you back on track. The alternative is buying every good deal that comes your way and trying to do something with it after. Over time, you will run into properties that end up being more trouble than they are worth. It takes time away from other deals you should be working on. To stay disciplined, you should develop a system for how you analyze every new deal that comes your way. The basis for every evaluation should end up with what the end goal for the transaction is. This decision will affect everything you do with the property. If you are set on renting, you may not do a lot of work on the property, or spend money doing the right work. Conversely, if you are looking to flip, you may spend money on work that will end up adding no value if you end up renting for a few years.

Most new investors have visions of making a million dollars on every deal and retiring after a year. What they find is that the business is much more difficult than it appears on TV. While this goal may be just a little bit unrealistic, it is certainly possible to be successful in real estate. The best investors are ones that have laid out how they will run their business for the next week, month, year and three years down the road. If you have a business plan and exit strategy in mind, it will affect the types of deals you entertain. All of the planning you do with your business will shape how you look at each property and help narrow the focus of the deals you buy. It is more important to buy the right deals, than what others consider a good deal. Every property should add value to your portfolio and be part of a bigger picture.

Your end game, not only for your business but for each property, can change at any time. You can find that you really enjoy the benefits of being a landlord and want to accumulate more long term holds. You can get into flipping, wholesaling, tax lien investor or any other part of the business that you find enjoyable. You can change gears at any time as long as you have a goal and action plan for how you will get there. This will lead you to work harder and ultimately smarter.

If you do not have a vision for where you want your business to be, take the time and get something down on paper today. It is also important that you do this on every new deal you look at. It is easy to get started when things are smooth sailing, but once you run into trouble, it is good to have an exit strategy and plan to fall back on.

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