Real estate investing can be an amazing tool to build wealth, produce income, and grow your nest egg. It can also be a nightmare, disastrous, and a giant pain in the neck.
I’ve flipped over forty properties and own five long-term rental properties throughout Northwest Arkansas. Here are ten pieces of advice I learned along the way, and the hurdles I see new people face.
1. Have Funds Ready
I can’t stress this enough. Have your funds ready to go. Have your funds ready to go. Have your funds ready to go.
A good deal will not give you three weeks notice and give you time for your uncle who once went to Lowe’s to give it his blessing. This is the biggest mistake I see. Get your lender, one who is responsive, and know your costs before a deal is ready. If your lender doesn’t text, email, or call you back… get a new one. Your lender’s reputation is highly important if you’re in a multiple-offer situation. Some investors use HELOCs for quick access to cash. HELOCs act as cash if buying the property exclusively with that or if you’re financing can tap into those for a down payment.
2. Think About More than the Price Per Square Foot
This will go against the grain of almost everyone in the real estate industry. Thinking and valuing a property only by price per square foot is the most disastrous thing you can do. There are so many items buyers care more about than sq ft price. Think about it… price per square foot is claiming that size is the only consideration a buyer looks at and that couldn’t be further from the truth.
Think about your last purchase.
- Total price. The property had to be in your total price point budget to appease your monthly payment desires. Total price is king. Guess how many times I’ve had a buyer tell me their budget was $180 a sq ft? Zero. It’s always “Hey Chase, my budget is 400k, 200k…1 million etc.”
- Location. More important than sq ft price. If it’s not in your total price budget and location you’re wanting…you’d have zero interest.
- Layout and Condition. A crummy layout is a no-go for almost every buyer. Primary bed on the top floor? House dated? Does it smell bad? Nobody gives a rip about the sq ft price if so.
Now think about all the items that could be part of a property that aren’t factored into the size of the home. Lot size, pools, docks, outdoor kitchens/spaces, garage capacity, and shops to name a few. These items are unique features that you won’t find at every property. I always said the value of a dock is priceless. They aren’t issuing more dock permits on Beaver Lake. So, if a buyer wants a dock, they automatically eliminate every lake home that doesn’t have one. Guess what most appraisers will not assign any value on the appraisal… The dock. Does that seem crazy? Sure it does, but most don’t do so due to their regulations on the appraisal. The same goes for whatever unicorn aspect a property may have.
3. You Must Be Decisive
Paralysis of analysis kills the ability to get a quality investment property in a good area. There are always going to be terrible houses in poor locations. The gems and the diamonds rarely give you enough time to make sure everything is ideal and perfect. How can you avoid experiencing paralysis of analysis? Include only your hopefully experienced agent and the people bringing money to do the deal.
I love my parents, friends, and family. Guess who doesn’t get input on my real estate deals? My parents, friends, and family. My other beef with people outside the transaction giving their input is they almost never see every property their friend or family member is considering. Buyers generally do a good job selecting a house. Seeing properties in person is a gold mine of information. If you go see twenty houses in your price point… you’re the expert on that market for the price and location. I don’t mind if family members show up, but it had better be for every showing so that they have the same perspective. Sometimes I’ll show a home and instantly tell my buyer we can find a dozen houses nicer or the opposite, it being the best 300k home I’ve seen in 6 months. If my buyer has only seen that one property, they have nothing to evaluate that against.
4. Stop Reading Investment Books and Websites Daily
There are good nuggets of information, but I’ve met more wannabe investors who have read every real estate book or article on the planet and never take action. You’ll learn more from your first flip or rental property in the first 90 days than you will by reading book after book. I think those books hold more value if you’re looking to scale your business, not start it. They can be a fantastic resource, but if you’re starting out you can get overloaded with information there. Think of it like going to The Cheesecake Factory. The menu is massive and too much information usually overwhelms people. Overwhelmed people don’t make decisions, which leads to taking zero action.
5. Use an Agent Who Is an Investment Expert
I’ve never had a short-term rental. I probably will someday, but I don’t have real-life experience with those. I have a vast amount of experience dealing with flip and long-term rentals. If your agent can’t share his or her portfolio with you, the in’s and outs… you likely need a different agent by your side. I have a few investors and I’ve shot down 98% of the deals they send me for various reasons. But the 2% I said yes on? They made a mint. I had an investor get a flip at $450,000. They put about $15,000 into it and sold it for $600,000. They owned the home for less than forty days.
6. Have a Good Team of Tradespeople
If you’re flipping properties, have a team of tradespeople, not general contractors who will usually blow the budget. For every property I flip, I have at least 7-15 people that touch the house in some form, from painting to floors, landscaping, plumbing, etc. I just had a transaction blow up because the buyers’ agent had never flipped a home. I wasn’t mad at her. She’s never done it. She recommended exorbitant general contractors who have their own subcontractors who take their cut.
I’m not blaming the general contractors. They play a critical role with people who don’t want to, know, or care to find their people. And yes, general contractors deserve to be paid well. It’s a pain to subcontract out a remodel, especially when the project might cost in excess of $100,000. They also know roadblocks to avoid and have learned from their past mistakes.
It took me four to five years to find a really good team. In that situation, my crew was about $50,000 less than the general contractors. That deal blew up for other reasons, but we wouldn’t have gotten as far as we did without my experience in flipping properties. If you don’t have a good team, it slows you down. Carrying the costs on a flip eats into your profit. This team of people can make or break you. Yes, you’ll spend more than expected on each flip nearly every time.
7. Don’t Be Too Proud to Pay the List Price
I have paid the seller’s list price approximately 90% of the time. Every investor reading this probably just screamed at this point. The numbers still worked and the locations were fantastic. That’s the goal, right? It doesn’t have to be hard.
Here’s my biggest mess up on this front. A couple of days before Thanksgiving in 2019, a former coworker of my wife’s sent me a message on Facebook that read “Hi, Chase, I heard you like to flip properties. We have our house listed for $230,000 but we would take $190,000. We have a home under contract that is contingent and we must sell it quickly.”
So, I go look at it and offer the $190,000 as told. I get a counter back for $200,000. I was mad. It felt like a bait and switch. I said, “I’ll think about it.” The next day was Thanksgiving and I thought, “Ah, it’s still an amazing deal, I’ll tell them tomorrow I’m on board for $200,000.” To my surprise, it went under contract that day and closed in December… at $230,000. My pride cost me $30,000 that day. Today that particular home is worth about $380-$400k.
It’s rare that a deal ever slaps you in the face. When it does, take it and learn from my foolishness.
8. Not Every Flip is a Total Remodel
You don’t have to find total gut jobs to be successful. Most of my flips have involved cosmetic items.
9. Appraisals Aren’t the Same as Market Value
You read that right. Market value is what a human will pay. There are places today that would appraise for over the list price, but I wouldn’t touch them in a million years. And there are properties that wouldn’t appraise that I would buy. That may sound odd, but let me explain and give a few examples.
I bought a home in Rogers for $450,000 on March 3, 2021. It appraised at $425,000. To close, I had to bring $25,000 since I offered an appraisal gap. I put it back on the market the following day and was under contract at $510,000 and it appraised at $490,000. The same home received two appraisals about three weeks apart and they were $65,000 apart.
I have a current flip on the market. The appraisal came in at $1 million. I listed it at $929,999. Should be flying off the market, right? I’m 40 days in and not under contract. It will likely sell soon but it’s not a million-dollar home, to me, and clearly not to the market. A good agent can read through the lines but they have to have the experience in those areas to truly help you.
10. Don’t Buy an Obsolete Home
I won’t touch a house where the garage has been converted into a bedroom, and I’ve seen investors advocate to do that. I avoid one bathroom single-family homes unless the location is ultra prime (i.e. walking distance to a major attraction.) Make sure it meets the minimum needs of your ideal tenant. A three bedroom minimum for me is my personal taste, and four is even better if you can get it.
Quality properties attract quality tenants. Investing is a long-term game. One bad tenant can spoil every dime and desire to stick it out. And yes, things break. Sometimes tenants are late. Keep going. It can be worth it, but it does take work. If someone tells you investing in real estate is passive income, they don’t invest in real estate. because it takes work.
Accounts to Follow on Social Media
- @RealEstateOldSchool on Instagram. This is the account of the late Rick Jarman, who was a wealth of information and a good motivator. His son keeps his page up. His videos are gold and huge, especially the ones about taking action. If you’re wanting to start down this path, watch every video he’s posted twice.
- @MarkMcMahonReal Estate on Instagram- He’s an investor and agent. I love his perspective. He stays active and gives quality advice.
Northwest Arkansas real estate expert Chase White with Collier and Associates achieves stellar results for buyers and sellers. With over 400 transactions to his credit. Chase has also been recognized as one of the top producers at both the local and state level.
