The 7 Mistakes That New Michigan Real Estate Investors Should Avoid in their first 5 deals:
1. Buying houses in area that they have no clue about:
You live in Chesterfield Township. You work in Sterling Heights. You just bought a junker on East Side of Detroit, which you just saw for the first time when you bought the house.
First you will kill yourself driving back and forth to the house. In two weeks you will start hating this house and yourself for buying it. Next since you have no clue about the area or the price point to buy or sell, you will probably end up buying the "wrong" house in the "bad" area to begin with.
Stick to the cities you know 'something" about - either where you live or where you work or a city right next to them. Don't experiement with the unknowns on your first 5 deals. Also just because you have a friend who lives in Detroit does not makes you a Detroit expert or make his opinion worthwhile anything.
2. Buying a junker that requires way too much money to fix for your first deal:
I have said it over and over again that for your first rehab deal you should draw the line at $20,000. Actually it would be better if it was $15,000 or less.
I am happy to report that best to my knowledge everybody I have told this too has ignored the advice. Typically I get emails / faxes and calls after the fact - they have bought it, are fixing it and now regretting it.
My rule is this - for your sixth deal it may be O.K. but not for your first five deals. Rehab that takes that much money also takes a whole lot longer time to complete, that means you cannot sell the house till it is done. It will also suck every single OPM you have accumulted so far which at this point is probably not too much to begin with.
Last point - I don't care if your contractor is rubbing your shoulders as he is giving you a quoate and smiling assurances - $40,000 rehabs don't get done in one month. You are looking at 3-4 months easy unless you are sitting in the house 9-5 by yourself managing them and working with them. Which is probably something you cannot do. The more expensive the rehab - the longer it will take to get done.
3.Buy an expensive house to sell:
That ties up with #1. For an example right now it is not a good idea to buy houses in the city of Detroit that have a high sell price. Anything over $150,000 will take longer to sell in Detroit than say some house in the $100,000 range.
Why? Because the property taxes, homeowners insurance etc make an expensive house in Detroit even more expensive than the suburbs. You will have a comparatively harder time finding a qualified buyer.
Similarly there are hundreds of "good deals" available in Oakland county in the $300,000 and above range - you don't even have be to too smart to find them. They are everywhere. Problem with a $400,000 house is it will take one year to flip.
The money is in this business is made when you buy and also knowing what the conditions on the ground are when you go to sell. Good economy; Bad economy does not matter - the $100,000 - $125,000 house never ever goes out of style. Stay in the "safe" price range and you will be be able to buy and sell Michigan bank foreclosures without sitting on turkeys.
4. Fixing houses like it is a Home and Garden Television event:
If you live in a $360,000 home in Farmington Hills and you just bought a $100,000 ranch in Oak Park - you don't need to remodel the Oak Park house in the image of your home. Really! Unless you have a crew from HGTV following you.
I stay away from perfection in my business and life. Perfection is a good thing - but not in rehabbing houses. You want good quality work but not at the expense of going overboard in fixing your houses or taking 5 months when it could have been done in 2 months.
Putting granite counters in a $150,000 house where a Formica counter would have done just because you want to, it is a dumb idea and most likely to cost you money that you cannot afford to blow up when you are new to the game of buying and selling Michigan bank foreclosures.
5.Not giving yourself enough time to sell:
It is easy to sit and whine about a house not selling. Much more harder it is to admit that you have done absolutely nothing so far to sell it.
If you are want the biggest mistake that pretty much everybody makes is to wait for the house to finish up renovation to start the selling the house. You just wasted 60 days for nothing. Whether it is running an ad or contacting loan officers - it has to be done way before the house is finished.
A smarter way to handle sellling houses is to make your business partner or significant other involved and 100% responsible for selling the house. So you can concentrate on findinding, financing and fixing - they are focused on flipping. If you are by yourself then use robots (AVS, websites, hotlines etc) to replace manual labor on your part to sell the house.
6. Doing Random Marketing to sell your foreclosure:
Whether you are running ads to sell houses or attract leads - they have to run consistently. For some reason everybody I talk to runs an ad for a week. Stop. Wait two more weeks. Run an ad again. Stop again. This is not the way a business is run.
First of all you never want to call in and run an ad randomly. It is too expensive. I have said again and again to sign a contract with a newspaper for at least 13 weeks to get the best possible rates. Putting color or running a bigger ad all sounds good but I rather have a consistent black & white ad, boring but running over and over again.
7. Being Distracted By Other "Stuff":
If you are working on an REO deal well that is all you should be thinking about all day long. Not about getting private money, not about Short Sales, not about Apartment Complexes, not about wholesaling.
Your whole business plan at this time should be - fix this house and sell this house. And that is all you need to know about real estate investing in Michigan at this point. The Short Sale, lease option, apartment complex, etc does not go away. It will all be here tomorrow and the day after tomorrow.
You need to sell the deal you have and get your first check. That is all you should be thinking. Same way if you are working on a Short Sale deal - well that is all you need to be doing. One deal and one check sounds much better than 4 deals and no check. This is yet another piece of advice that nobody wants to hear.
Listen up - you can hibernate in a cave for 60 days up North - come back and there will still be foreclosures / apartment complexes / short sales / lease options / REO's / OPM - available for you. It never goes away. One a side note it also does not matter if you sit on the sidelines or do a deal. Your desire / ambition / intent to do something is really irrelevant because somebody else always acts upon theirs.
What you really really need to know and remember:
Almost everybody puts way too much effort in buying and fixing and practically none in selling the house. Actually it should be other way around. Tons of deals available. Don't buy houses that require too much time to fix. Wait till the right deal comes around if you have to. Wait 30 days if you have to. But follow the above 7 rules and you will sleep better and happier.
Put the effort, the thoughts and the money toward selling the house. Espeically if it is your first deal. Get the check. Don't look at another house. Don't try to get private money. Don't try to build an investor network. Don't try to do a Deal Finder business. Don't try to look at apartment complexes. Don't try to write a blog.
Sell. Sell. Sell your first deal. Get your first check.
Everything else is unimportant.
