Play by the Rules: 5 Steps

[Rick Howell]

Rules provide structure to our world. It is no different in the investment property world. Without rules, staying focused is difficult if not impossible. Working without a good framework will likely leave you feeling scattered, and lacking direction. Staying on track requires structure. Here are five “golden rules” to buying investment properties.

Rule #1: Leave Emotions Behind

We all get attached to an idea, a vision, a plan. When you are looking for investment properties, there are many things that can go wrong. Keeping your emotions out of the equation can be difficult but necessary. If a deal falls through, or if you find you need to change tactics, remember there are always more properties out there.

Rule #2: Find Value-Creating Properties

Buy low and sell high. It’s a simple concept, but investors sometimes struggle to identify which properties have the potential for good profit. Watch for market trends, get good feedback from contractors on the scope of repair work needed, and do your due diligence to determine details like interior finishings based on your likely target buyer.

Rule #3: Trust Your Numbers

Along the same lines as staying emotionally detached, this rule requires objectivity rather than subjectivity. Numbers can be manipulated to give any number of results, so don’t rely solely on other people’s data. The key is to trust that your numbers accurately reflect the market, scope of repairs, and target resale value. Once you have faith in your data, go with it. This holds true when the numbers point toward moving forward with a deal just as much as when the numbers tell you to move on.

Rule #4: Utilize your Team

No one can do this alone. Use your employees, your partners, and your contractors to work efficiently. If you have a good network of people you trust, your work will be much easier than if you feel you are carrying the bulk of the workload. Tenant dispute? Let your property manager handle it. Problem with the rehab work? Your contractor or project manager should be first on the scene.

Rule #5: Expect the Unexpected

No matter how good you are at planning and executing your vision, things happen. You can prepare for the unknown by ensuring you have ample cash in reserve to deal with sudden issues. In other words, don’t work without a net. Storm damage, a bad tenant, a burst pipe, or any number of other emergencies can happen at any time. Protect your business by preparing for the unexpected.

This industry is complicated. By sticking to the rules, you can protect your business and handle bumps in the road without losing sight of your goals.