8 Things you need to know before you invest in California Real Estate
1. Be ok losing out on offers
Great investors always swing the bat. You win some and you lose some. Average investors sit on the sideline and analyze. Great due diligence is crucial but you can only hit the pitches you swing at. Be ok with losing a few deals here and there.
2. You make all your money when you buy
As mentioned in section 1, losing a few negotiations here and there will bring you more confidence on the ones you win. You can’t sell smart if you buy dumb. All of the money is made at the acquisition.
3. Cap rate is only one metric
Average investors tend to focus on one metric. Often times it is the cap rate (if they are buying and holding. Cap rate is a very subjective term that is often looked at from the wrong perspective. Cap rate is more of a risk factor than an ROI metric. For example, in most cases, the higher the camp, the higher the risk. Sure there may be an opportunity for a bigger return but that comes at a cost. Higher vacancy rates, lower rents, non-stabilized projects or neighborhoods etc… It is very important for you to discuss areas and future goals with your agent before analyzing the deal financials.
4. Deal flow will grow your wealth faster than the unicorn flip
Too many times, we see clients sit on the sidelines waiting for the perfect 30% return while their competitors are turning over homes at twice the pace with lower markings but higher profits. Deal flow will also help your confidence long term.
5. The right lending partners will make all the difference
As mentioned above, one of the key factors to getting access to capital is your deal flow experience. Lenders will always lend more to the investor who completed 10 flips at $20,000 in net profit each than the investor who completed one flip at $200,000 net profit.
6. Streamlining process will net you more than pinching pennies
Do you know why the elite armed forces are so effective? They have a playbook for everything. Their brains have essentially be trained to tell them “I have been here before.” When we have familiarity with something, we tend to move through it with confidence. Rather than trying to squeeze every penny out of every opportunity, work on streamlining your process. That will build your confidence and speed in getting through real estate investing.
7. Be flexible in your investment position
In most cases, you will make the most money with a long term BRRRR strategy. More on that in a future series. In other cases, it makes sense to acquire and rent immediately and in others to acquire, rehab and resell, as fast as possible. Having an investment portfolio that can support all three of these objectives can give you insane deal flow opportunities.
8. Know your terms and boundaries
Get comfortable with a pro forma software you can use to quickly evaluate property. We use “Property Evaluator.” It is an app on the Apple platform that works on iPhone, iPad and Mac computers. It is about $50 and allows us to evaluate properties on the go.