Investing In Real Estate: Quality Over Quantity

by Randy Zimnoch

There is a natural instinct that drives investors to get involved in as many deals as possible. They are typically under the assumption that the more deals they close, the more money they will make. This is true if every deal ends up being a home run, but more often than not, some deals will require much more time and effort just to scrape a small profit. The energy you spend on these deals would be better served focusing on prime deals that will yield greater returns. The experience you gain working on these smaller deals is nice, but over time you will learn that quality is better than quantity.

Getting a call from your realtor about a new property that you may be interested in is almost like Christmas morning. You can feel the excitement and you will do everything to make the deal work. However, some properties are just not worth the time, money, energy and expense. There is nothing wrong with making a small profit on a deal, especially if you are slow, but if working on this deal takes away from a bigger prize you need to evaluate if it is worth it. After all is said and done and everyone and everything is paid for, your bottom line might not justify working on smaller deals when bigger ones are available.

This decision will largely be based on your pipeline and current situation. You may be very content working on twelve deals a year when other investors only want to work on six juicy ones. The problem with working on more suspect deals is that your margin for error is much less when there is less meat on the bone. If something goes wrong with your budgeting, expenses or the property doesn’t sell at the price you expected, you may find yourself in trouble. Instead of making a small but acceptable profit, you are now forced into looking at plan B, which could mean renting the property or re-listing at a discount. Subsequently, you are looking at even less profit, more headaches and less capital for your next deal. Ultimately, you will end up regretting that you got involved in a deal with very little upside and a lot more risk.

There are certain rehabs that are worth making a little less on if you can gain valuable experience or develop a relationship with a new contact. Before you get involved in any deal, you need to establish what your goals are with the deal. This may sound obvious, but some deals are done for the bottom line while others are done to add another block to your portfolio and even others are done to develop relationships. Once you determine this, you should evaluate whether your time and money are worth the risk and the return. If you are comfortable with what you have to give up in return for the reward, the deal will most likely make sense.

Doing a few solid deals a year with good people is much safer than trying to chase smaller deals throughout the same period. There is nothing wrong with hitting singles on deals, but those deals often result in strikeouts. There is plenty of business to go around, as not to chase questionable deals. In real estate investing, quality is always better than quantity.