When I discovered real estate investing I was no stranger to challenges. After pulling myself out of some very low times, I had my path in the tech world. I was flying high and feeling good.
And then the bubble burst.
To say that point in time was a challenge is a total understatement. Because it wasn’t. When the bubble burst and the industry tanked, I was wiped out. And I wasn’t alone. Anyone who touched tech felt it — the business owners, entrepreneurs, investors, workers. It was rough and it knocked me down pretty hard. But I couldn’t stay that way for long. I had to pick myself up, dust myself off and keep pushing forward.
By now you probably already know what comes next. I started down the path as a real estate investor and never looked back. Have there been bumps in the road? Absolutely. But pulling myself up after the bubble burst taught me a valuable lesson about challenges. It taught me that it’s the challenges that make us great — not the successes. Anyone can thrive in an up period. The real test of character and the entrepreneurial spirit lies in how you handle the down times. How do you pull yourself up? How do you get better? How do you navigate whatever life throws at you? Because if you can steer yourself to not just safety but success during tough periods, then you’re going to come out ahead in this industry.
Turn Your FLIPPING Fails Into Wins
This needs to be your mantra as you start finding and flipping properties — challenges make me better. While, for the most part, your flips are going to be smooth, you’ll no doubt slam head-on into at least a few walls from time to time, especially in the beginning. It’s easier said than done, but it’s important you take a breath, take a step back and assess the situation. See what you can gain from these not-so-great experiences. Then get back on track.
In this industry, things happen. I’ve flipped thousands of properties and have watched my colleagues and students do the same — so I’m no stranger to the types of missteps real estate investors can and do make. And even the toughest breaks can lead to some of the best lessons. Don’t believe me? Every major mistake comes with a major opportunity for growth and development.
Mistake #1: Underestimating Cost or Time
I give students at the Nick Vertucci Real Estate Academy (NVREA) a comprehensive budget sheet to help them calculate the approximate costs for their rehabs. It’s helpful but, still, I often see graduates hit a snag once they’re out in the world. It’s not that they don’t have the tools or don’t know what to do. It’s that they try to cut corners to save time and money, convincing themselves that they can get the job done faster and cheaper, despite what the numbers say. And that’s a recipe for disaster.
My advice? Run the numbers then add 50%-100% to your totals, both in terms of time and money. While you likely won’t go that far over budget, it’s good to have some wiggle room early on. I’m 10 years in and I still build in a solid contingency to ensure deals are good even if I go over — things happen, even when you’ve been doing this for a decade.
And if you do go over? Not only should you try and zero in on the areas that tripped you up, but you should figure out how to cut your losses right now. If you’re close to complete, see if you can price this property to sell without losing more money on the deal. Sometimes getting a property off of your books is the best thing you can do — no more money’s being spent or tied up, and you can take what you learned and move on. And sometimes that means flipping a property without finishing everything to your original specifications. That’s OK, too.
Mistake #2: Going WAY Overboard
You want your investment properties to be great. I get that. I do, too. But “great” is a sliding scale — if you’re new to real estate investing, you’ll no doubt discover this soon enough. So while those smart features, marble countertops and sleek stainless steel appliances all look great, they may be too much for the neighborhood, and that can leave you with an incredible property but no buyer.
A colleague of mine recently had this experience, and he’s been investing in real estate longer than I have. He bought an investment property in a town that’s on the brink — it’s about to be an It Town, I’m sure. Parts of the community are already there and others aren’t. And he decided to buy in the “not quite there yet” area.
He bought up some land and built from the ground up, then listed the house — a stunning property — for about twice the average selling price on the block. And guess what? It sat. Lots of prospective buyers came by, but no one made a bid. They wound up showing the property for nearly 18 months and he accepted an offer about $200,000 less than the original list price, even though his list price was well in line with the average for the surrounding town.
The lesson here? Know your audience. If properties are selling around $200,000, you don’t want to be the only $800,000 house on the block. That doesn’t mean you have to fall perfectly in line with the other houses, but you do need to be mindful of your surroundings and what’s considered a “great” house from neighborhood to neighborhood. Manage your comps, visit open houses and see what you can see. Then go from there.
Mistake #3: You Bit Off More DIY Than You Can Chew…
It’s a mistake lots of us have made. You’re fairly handy around the house so you try to tackle some of the hands-on rehab work yourself. Maybe there’s a roof that needs some TLC, a cracked driveway that needs a coat of sealant or carpet that needs to GO. But you saw the contractor’s estimate and opted against paying a pro. You’re going this one alone.
But then it happens. You crack the wood floors, hit a load-bearing beam or snap a pipe and, suddenly, the few hundred dollars you saved by taking on the work yourself is going to cost you thousands in last minute fixes. It’s frustrating, it’s disappointing and, beyond that, it’s likely going to set you back in terms of cost and timing.
The lesson here? Find a good contractor. The money you invest will almost always be less than fixing the mistakes you made when you carelessly swung that hammer. Once you lock in an ongoing partner in this arena, you’ll have more flexibility to negotiate and more opportunities to get a good deal. If your contractor knows you’re going to deliver lots of work over the next few weeks and months, they’ll likely be open to a more advantageous pricing and billing structure — so don’t be afraid to ask.
Challenges make us better. As entrepreneurs and real estate investors, every time we hit a bump in the road we’re challenged to push through it, climb over it or work around it. That’s the nature of this business. And that’s what makes it so exciting.
More on this at NVREA. Challenges are a huge part of the real estate investing industry, so we always do a deep dive into some of the common bumps in the road. Check out my website to see when the next Academy class is enrolling and bring your questions, concerns and challenges. Together, we’ll find the answers.