Over the last two weeks, events have unfolded that have reminded me of an important truism in real estate investing.
“Always have a back-up!”
This was played out in dramatic form with a deal I’m closing tomorrow. A wholesaler friend of mine brought me this great little three bedroom one bath home tucked away on a dead end street where pride in ownership is alive and well. The electric and plumbing is already upgraded and this rehab is cosmetic with the exception of adding a bath.
I’m buying it for $52,500 and the as-repaired appraisal came in at $86,000. Not a bad spread. This is the kind of deal I like!
When I called my hard money broker, she was delighted and we moved quickly toward closing. I was only waiting on the closing time…
That’s when the wheels fell off.
It seems my broker’s money source decided he was only going to invest in property valued at $250,000 or more. Yikes!
So, I went to back-up hard money broker number 1.
The broker took his time…about 5 days…to finally tell me that he only wanted to loan about 60% of the as-repair value. No way. Not when I can do better (70%) with back-up hard money broker number 2.
Back-up broker number 2 is probably who I should have went with in the first place. I’ve borrowed from this source before. It took one phone call, and the money is there and I close in a couple of days. Wham-bam, the deal is arranged.
It looks like it’s time to shift around the players in my core team a bit. Back-up number 2 is now my starter. Back-up number 1 (foot-dragger, doesn’t-loan-the-70%-he-said-he-would) is benched.
I tell this story to illustrate that it’s absolutely CENTRAL to your business to have back-up plans in all aspects of the business.
I strongly recommend having two or three:
– Hard money brokers
– Appraisers for quick value assessments
– Rehab crew leaders
– HVAC techs
In fact, have two or three of any trade or profession lined up, ready to spring into action as a moment’s notice. Sure, I have my favorites in each of these areas, but I am striving to have 3-deep hot back-ups in each. Thing happen. Life happens! Be prepared for it.
Don’t stop there. Have back-ups when you rent or sell a property. A property isn’t rented until the rent and deposit (or lease/option fee) is paid and the keys are in the hands of the new tenant. So, encourage back-ups until the money is in your hands (in cash).
I’ve had appointments set up to sign leases, and the potential tenants never show up, no call, and they quit answering their phone. This is despite being hot for the house an hour earlier! If you are in this business long, you will learn that people will disappoint you and they will fool you. So, establish policies and make one of them “it ain’t rented until it’s paid for!”
Encourage back-up offers to purchase. Deals fall through all the time! Take as many back-up offers as you can.
Having back-ups is a mental frame of mind that fits within being a big-picture thinker portion of the Mind of the Real Estate Investor. In addition, rearranging your core team is thinking big and long term. It’s a constant process of improvement and adjustment. This approach is crucial to your business! Apply this principle and profit!
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