Fast Patience
Apr 5th, 2010 by July Ono
“Hurry up and wait” is the axiom in acting. You do everything possible to be ready, on time, on schedule, on set, on call, on demand when the director calls for action. Real estate investing calls for the same axiom. I call this having fast patience. Be ready to act now when the time arrives in due course.
In conversation with some new investors, their current challenges in buying real estate is that it’s a buyer’s market, people are paying well above list price. Anything listed is gone in a week. How does an investor get an edge in a market like this?
One of my top ten rules: never be in a hurry to buy. Haste makes for bad mistakes. Better to be thorough and informed than cursory and ignorant. You end up paying the price sooner or later.
There is a significant cost for paying too much, not just in real estate. It is applicable for everything you buy. Use the 10% rule. Consider that the actual cash that you earn is 10% net profit. If you earn $100, less taxes and overhead, your net profit is $10.
Consider that most businesses do not earn a 10% net profit. The average is between 3% to 5% net profit.
Now let’s reverse engineer these numbers.
If you pay $20,000 over list price for an investment property, you would need to earn $200,000 in gross income to net $20,000. This is extreme math but the example is used here to point out how easy it is to spend too much without realizing the true cost, or in this case, the true amount of income required to pay for something. This is why you never want to pay over list price or over market value. You actually want to negotiate price concessions so as to have instant equity the day you buy.
As a rule, I do not enter into multiple offer scenarios. The bidding environment is akin to an auction where emotions rule and over-bidding is a common and expected event. That’s why they do it.
How does a real estate investor get an edge in this kind of market? Stop waiting for the MLS to offer a new listing. Drive through the neighbourhood that you have identified as your ideal demographic. Pick three to five of the best buildings that you would like to own. Contact the owners and make a solicitation to buy. You may contact the owners directly and do a FSBO (for sale by owner) or use the services of a Realtor.
Fast Patience refers to being patient and waiting for the right deal. Fast refers to taking immediate action when the offer presents itself because time is of the essence. Patience refers to being prepared and ready to take immediate action when the opportunity presents itself.
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