The 'what If' concept in Real Estate Investing

The "What if" Concept

Unsure how to go about real estate investing, the average investor adopts a business model that makes sense to them that is based entirely on assumptions - many of them flawed (although they don't know it yet). When you do this you're playing with fire. Instead of using sound logic you're probably following what I'll refer to as the "What if" concept. Be honest with yourself for just a minute and tell me if this sounds familiar: When you analyze a potential investment property, you'll run the numbers, make a series of assumptions, and decide that it will work if (pick one):

•l the property will rent for the amount you've estimated

•l you can find a buyer immediately and convince them to pay market price

•l you can rehab the property and find a buyer within a reasonable period of time

What if you find an investment property you like and the market rents will support a rental rate of $1,200 per month? If your monthly expenses are only $1,000 you'll be able to slip $200 into your pocket every month and begin to smugly think that real estate investing is one of the easiest games in town.

What if you locate a property for 80%-90% of market price? If you can buy this property, you could flip it faster than your local IHOP restaurant could flip a pancake. Surely somebody would jump at the chance to save 5%-10% off retail prices. Real estate is really simple - and anybody can make it work.

What if you take out a mortgage on a property that you can gut and fix within 90 days? If you can get it fixed quickly and get it back on the market, you could sell it, make money - and repeat the process. Could there possibly be a quicker, easier way of making fast money?

There's a problem with approaching real estate investing with these thought processes. They're flawed and will lead to almost-certain failure. It doesn't matter how militantly you've followed your strategy, if you play the game like a rookie, you're going to get rookie results. And rookie results will kick you to the curb as a real estate investing failure in no time flat.

These "What if..." situations are common real estate investing scenarios. Thousands of novice investors try these strategies every year. A lot of investors make a whole lot of money using one or more of these strategies. These strategies may work...for awhile.

And then..."What if..." turns into "What now?" When you base your ability to turn a profit on a singular investing approach you can still make money as long as all the trains are running on time. But, you know as well as I do that eventually the best-laid plans can be turned on their ears. "What if..." really can become "What now?" because you're overlooking a universal truth about real estate investing - actually several.

Four Fundamental Truths

The reason that this strategy is flawed is because you're overlooking a few fundamental truths about real estate investing. Here they are as I see them:

•l Markets Change - The real estate market is just as susceptible to changing conditions as any other investment opportunity. Generally speaking, real estate gains in value year after year. However, just like the broader economy or the stock market, real estate runs in cycles. It's not unusual for real estate to enter periods of appreciation or depreciation. If you assume that an investment will always gain in value, you can and will lose money.

•l Laws Change - You might purchase a property expecting that you'll always be eligible for specific tax credits. By the same token you may expect to be able to participate in the federal Section 8 housing program. If you purchase a property with the expectation that you can supplement your rental income from tenants based upon receiving federal rental assistance checks on behalf of tenants and the eligibility rules change, you might find yourself shut out of an income stream that you depend upon for a fair amount of real income. Failing to be cognizant of changing laws can cause the profitability of a property to evaporate.

•l Lives Change - One out of two marriages ends in divorce. If you purchase an investment property with the expectation that your marriage is on solid ground and for some reason "Happily Ever After" fades into "Have Your Lawyer Call My Lawyer", you might find yourself in a situation where you absolutely have to sell to in order to satisfy a divorce decree. What will you do if your marriage falls apart and you have to sell while the market is down and your property has negative equity when it's time to sell?

•l Circumstances Change - What will you do if your spouse sours on the idea of investing in real estate or one of your children requires specialized medical care for some dread disease? The circumstances in existence when you initially purchased a property can change in the blink of an eye. Failure to be aware of the possibility that circumstances can and do change on a daily basis can be financially devastating.

Stay Tuned!!

Peter Vekselman is a National Real Estate Investment Coach, training you to succeed in real estate investing with a custom program built around YOUR needs and goals.

www.coachingbypeter.com