Written by David Lowrey, Owner of Stress Free Property Management
Most new investors get what I call “Deal Fever.” What is it? Well it is the overwhelming desire to just do a deal and buy a property. This is especially strong when you’ve been looking for awhile and lost out on some previous deals, or when you start counting the money you are going to make before you have it under contract. I always think about this as a St. Petersburg Property Management Company looking for deals.
I know you are saying it, because I said it too when I first started out, “that won’t happen to me!” As a St. Petersburg Property Managerwith all these years under my belt, I still catch myself sliding into this condition.
To ignore this Fever takes lots of practice and experience. Even experience investors, still fall into this condition all the time. It is perhaps the most dangerous tendency then anything else, when searching for deals.
What are the symptoms? Let me share them from my own personal experience.
- You feel excitement because you think you found a deal and are determined to get this one.
- You start calculating how much you can make. The only challenge is this tends to be overly optimistic, especially when you are competing against others in a Seller’s market
- The price goes above what you think is a good deal, and you rework the numbers to still make it work.
- The price keeps going up and you start sacrificing your profit margin. Surely appreciation will catch up to me, right?
- You feel emotionally invested and it hurts to think of walking away from the deal at a higher price.
- You tell your family and friends what you found, and they start asking you how the negotiations are going.
- You go looking for comps (comparable properties) to justify a higher purchase price.
- You think prices or rents are going to continue to rise and so a higher purchase price is justified.
- You visit the property multiple times trying to figure out what you can cut in order to pay more.
- You started lining up vendors to do the work even though you don’t have it under contract.
If you feel these things, does it mean you got the Fever? Yes, usually. There is a tendency in the human mind to want something once you get invested in it. It is the whole reason why car dealerships take you on a test drive, build rapport, and spend a lot of time with you negotiating. People hate walking away once they’ve committed.
How do you fight this? Have a price in mind that is conservative and stick to it before your start negotiations. Also look for other deals that have something positive about them. If you look at enough, you’ll start noticing you can buy deal A for $80,000 and Deal B for $80,000 but deal B has two hundred square feet more or a garage. There is additional value in Deal B, so if Deal A makes sense, you could pay a bit more for Deal B.
If you are patient enough and look at enough deals, you will start to notice certain deals are just excellent compared to similar properties for roughly the same price. Target those. I constantly look for realtors who misprice their listings and jump on them right away. You should be getting daily emails of new listings, pending, and sold listings. Look at them firs thing in morning, and it will help you to develop a feel for value.
Understanding what a property is worth because you’ve looked at 100 similar properties and know what they sold for is an unbelievable advantage. It is the difference between a pro and an amateur.
Plus, you should discipline yourself to walk away from at least 20 decent deals and try to find just one great deal. The normal ratio is 100 potential deals to get one good to great deal. Are you going to see all 100 deals in person? Yes, in the beginning but after a while you will know neighborhoods and can tell from pictures on the Multiple Listing Service.
I’ve been buying properties for 15 years and I am still in the 100 to 1 ratio. In today’s Seller market it might be 200 to 1.
Comments powered by CComment