It’s rare to find articles where service providers talk about clients that they don’t work with. When service is refused to someone, it’s commonly considered to be an act of discrimination. Money doesn’t discriminate. As my mentor told me, “Everybody’s money is just as green.” Then why would we create criteria that defines whom we do not work with? It’s to optimize everybody’s time.
First is an expectation gap in terms of time. We come across several budding investors who have seen news articles of success and want to achieve it overnight. As Lionel Messi put it aptly, “It took 16 years of blood, sweat, and tears to become an overnight success.” Investing is a game that is played for the long course, and investors who have patience end up with massive gains to show for it. As Leo Tolstoy put it in War and Peace: “everything comes in time to him who knows how to wait…. there is nothing stronger than these two: patience and time, they will do it all.”
The second expectation gap is in terms of money. When you begin your investing journey, expectation setting is crucial. How much money can you expect to make should be one of the first questions you think about. The answer to this question depends on your skill level, risk-taking capability, and the amount of time you can spare. It also depends on what kind of deals you do: Rentals or Flips. The return on investment varies from 8% to 40%+. We don’t work with investors who have unreasonable expectations of profit. It sounds strange, but many investors don’t even realize that their expectations are unreasonable.
Price Vs. Terms
Take the example of Jennifer Parker (Name changed – I’m a fan of “Back of the Future”). She is an out-of-state investor who wanted to buy a BRRRR deal in Tampa bay. She had seen several videos on how BRRRR deals produce a much higher cash on cash return as compared to regular rentals. She was aware of the appreciation in most areas and was eager to proceed.
We came to a grinding halt when I asked her one question: “At the time of the acquisition (“Buy” stage of BRRRR), you will be buying your property with cash or hard money, correct?” Her answer: “No. I want to buy the property with conventional financing.” I had to explain to her that there are two types of deals: Distressed or Turnkey. In distressed deals, either the property is distressed, or the seller is distressed, or both. In such cases, you can’t expect to buy the property with conventional financing because the appraisal and inspection contingencies will prevent most purchases, and the timeline for the closing will not work. Most distressed deals need to be closed within two weeks, and no conventional lender will be able to close that quickly. This is an example of an investor who wanted both price and terms.
What Does It Mean: Price and Terms?
When you buy a property, you are usually looking for favorable treatment on one of the two parameters: price or terms. If the buyer is willing to pay cash (bad terms), he will expect to get a discount on the price. If the property is in great shape and the seller can afford to wait for 30 – 45 days to get the money, the seller would demand a high price but give terms (accept conventional financing, inspection, and appraisal contingencies). It’s highly uncommon to find deals in which the investor gets both price and terms.
Here is another example of unreasonable expectations. Marty McFly (Okay, I’m a big fan of “Back to Future.” What can I say!) is a seasoned investor based in California and finds most of his deals himself in the San Francisco area. He has a full team of rehabbers, listing agents, title companies, insurance agents, appraisers, and lenders. As a full-time investor (he doesn’t have another job) and an investment of 250k, he makes 50% on his money = 125k each year. As far as returns go, it’s a pretty good return.
I spoke with Marty, and he told me that he would be willing to invest 100k in the Tampa Bay area and was looking to make 50% on this money. I told him that it would not be possible. This is because he doesn’t self-perform any of the tasks in the Tampa deals that he does in his deals in SanFran. The more passive you are, the lesser the rate of return. I advised Marty to continue investing his money in his home market to make a higher return on his money. This is an example of a passive investor looking for returns that an active investor makes.
When I speak with investors, I don’t just ask investors what return they want to make. I also ask them how much time, skill, money, and other resources they can bring to the table. If the investor just wants to put down the money and do little else, it’s hard to produce a cash-on-cash return much higher than 15%. On the other hand, if they’re willing to self-perform several of the tasks, the sky’s the limit.
Graystone Investment Group
Graystone is an experienced Investment Group in the Greater Tampa Bay market. Our company is designed to help new and seasoned investors.
If you’re ready to dive into the real estate market, contact us. Whether the type of real estate investing you want to do is wholesaling, buy-and-hold, commercial investment, or fix-and-flips, we can help.
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