Some Real Estate Investment Contingency Planning

Real Estate Investment Contingency PlanningSince we are spending a bit of time with our families in Europe this week we haven't been as immersed in our regular day to day activities.

So we decided to take this chance to answer some of the questions that we get sent into us.  Here it goes...

What contingencies do you have in place just in case the real estate market was to go terribly wrong?

Sheesh, always looking at the negative eh? First, let’s give this some context … we have a cardinal rule with our real estate investing.

We NEVER buy a property that we would not want to own FOREVER.

Yes, you read that correctly.  Even “rent-to-own” properties are properties that we would want to own forever.  We view them as long term “buy and hold” properties that we happen to be slapping a “lease/option” onto.  This mentality forces us to pick good communities (good population trends, high income and transportation/infrastructure improvements, etc.) and it also forces us to ignore properties that don’t meet our “starter home” criteria.

If a juicy cash flowing opportunity crosses our desks we pass on it more than 95% of the time because it’s outside our criteria of good starter home in a good community.

So back to the question, if what you mean by “the real estate market was to go terribly wrong” … is that the real estate market loses value and even “crashes” we’re protected because we bought a nice little home that we can rent out or even sell (to raise needed cash) without much difficulty in almost any market conditions.

So contingency #1 is buying properly.  If we do that correctly then we’re not worried about the market going “terribly wrong” but are realistic enough to know that it could.

Contingency #2 is having enough liquid cash available at all times to “weather the storm”.  We’ve been at this long enough to know there will be rocky times and you have to have cash reserves to cover unexpected repairs and vacancies.

Contingency #3 is always monitoring our credit scores.  We just checked and both have scores over 700 … one is a score of 764.  We want good credit because it makes access to money easier.

Contingency #4 … we’re not scared to work.  If we need to fill a property we’re confident we can out hustle and out advertise the competition in the area.

What is the worst thing that happened to you on a Rent-to-Own deal?

Another negative one, what is this, a theme?

The worst thing that ever happened to us was a tenant got a new girlfriend who hated the house (we assume) and convinced our tenant to hate it too.  After no complaints about the property for 1.5 years he ended up leaving and hired a lawyer to try and extract an insane amount of cash from us because of a couple sewer backups a year before that were written up to seem like the house had flooded under 10 feet of water.

Being involved in any form of litigation is never fun but we had our ducks in a row and with the help of our lawyer quickly ended the matter without any problems or cash payments.  At the time getting served with legal papers was a bit scary … looking back it was just another learning experience.

Why do you recommend purchasing only one property during the first year?

We’ve probably said that and what we likely meant is “buy one property and get it handled before you buy your second”.

For beginner investors acquiring a property is a lot to deal with.  We’ve found that it can be easy to get overwhelmed with it all.

After your first property you have a good idea of what’s involved in owning real estate and then if you decide to buy two or ten all at the same time you’ll be better informed.

How do you overcome fear?

Well, years ago, we didn’t.  Then we started hanging around people who were doing what we wanted to be doing.  They were buying property, renting it out, flipping it and profiting from it.  By  just listening to the way they handled their affairs and dealt with problems  we gained enough confidence to take action ourselves.

We can’t tell you how much we value hanging around people who are actually doing what you want to do.  Today we spend tens of thousands a year to attend mastermind meetings and thousands more for other conferences and material … years ago, we spent less but put ourselves in places where action takers gathered..  Jim Rohn has this great quote, You are the average of the five people you hang around most.”

As soon as we changed who we were hanging around our thinking, fears and results began to change.

Who are you hanging around?  If it’s people that have the same fears as you do change the people!

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