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Real Estate Investing: Your Backup Plan Might Be Your Only Plan

Published on Tuesday - May 13, 2014

Even the most concrete plans will show some cracks every now and then. In the world of real estate, if you are depending on your first option you will quickly realize that things don’t always go as planned. The most successful investors will make contingency plans for such a scenario, as there is a slight chance it will be needed. It is usually in times of panic or crisis that bad decisions are made. Inappropriate knee-jerk reactions will only compound the initial lack of preparation. With every property that you get involved in you need to protect yourself and have a backup plan ready. It may be the only thing that saves your investing business.

It is very rare that a deal will go exactly how you envision it from the time you make an offer until the time you take ownership. Even after you close on the property, you will have another set of obstacles and challenges that you will be forced to deal with. It is always great to have a plan, but you also need to have a couple of backup plans in place as well. Everything from budgeting to scheduling could throw a monkey wrench in your plans if you are not prepared. Even if you are prepared and have everything in place, it doesn’t mean that the people around you share the same vision.

If you intend to flip, how realistic are you with your end price? What would you do if there is not as much interest as you thought there would be? If you opt to rent, what are the fair market rents and do you want to be a landlord? If you decide to sell, what is the minimum you would take? All of these questions, and many more, have to be thought about before you even make an offer. Once you acquire the property, it is too late to run these scenarios when there is real money at stake. If you are forced to make a tough decision in times of desperation you will compound the error.

Take the time and lay out every step of the process and what can go wrong in each area. Play out what you would do in the worst case scenario and how it would impact your bottom line. There are those who say that thinking like this is negative and is a precursor of how the deal will go. The reality is that this is much more the norm than the exception. If you don’t prepare for negative things along the way you will end up disappointed in the results. If you have to say that you hope it doesn’t come to that or you don’t know what you would do if that happened, you may be taking too much of a risk with the property. Of course, some worst case scenarios are not very realistic, but if others are only a couple of steps away from happening you have to put that on your radar and at least consider the possibility.

A truly smooth deal from beginning to end is not the most likely scenario with any real estate deal. The more prepared you are for this, the better your business will be. What you will quickly find is that your backup plan may be your only plan.

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