Hi Everyone,
As summer slowly gives way to fall here, I’ve been reflecting on the proverbial real estate rollercoaster that we’ve been riding for the last six months.
From March to now, interest rates have basically doubled, sales of both new and existing homes have slowed, and the market as a whole feels somewhere between lukewarm and cool.
For many people (both buyers and sellers alike) it’s kind of a scary time.
When things feel uncertain as they do now, I think it’s critical that we all take a deep breath, collect ourselves, and get back to basics.
So, in this month’s newsletters, we’re going to emphasize simplicity and clarity in real estate—two things you can’t do without if you want to succeed with real estate investing.
Ready?—Let’s get started.
-Shannon
310-853-0335 | ShannonShue@KW.com
*** The Monthly Workshop is back in session my friends! We’ll be doing a Market Update on Sept 15, 2022, 12:00 PM. Don’t miss this opportunity to learn about all-things SoCal real estate in these unique and energetic sessions. During this month’s workshop, we’ll discuss what’s shaping the market.***
The Short Story...
***The market is sputtering and that makes many real estate investors edgy.***
***Edgy investors can become paralyzed investors as the fear of making a 'wrong' decision prevents them from making any decisions.***
***To overcome market nervousness and avoid falling victim to 'analysis paralysis' investors need to embrace simple, clear-cut principles.***
***Start with what you know—eliminate agents who can’t meet your basic needs.***
***These principles (or investment criteria) should be so simple and straightforward that they can fit on the back of a napkin.***
***If you learn how to simplify your investing principles, you'll save yourself a lot of time and money (in addition to blood, sweat, and tears). ***
The Full Story...
Most people think they have real estate investing principles, but the truth is they don’t.
Instead, what they have are some very loosely (and overly complex) held ideas about buying and selling real estate that they’re mistaking for principles or a criteria.
So, with that being said, let’s get clear on what investment criteria really means…
What is investment criteria?
Without being overly technical, your investment criteria is a set of sharp, succinct rules or guidelines that you use to objectively assess an investment property. To put it in more tangible terms, things like…
- Geography
- Property taxes
- Market rental rates
- Property management costs
- Proximity to schools and other amenities
…can all be a part of your investment criteria.
In general, your criteria should be well thought-out and unwavering—this is not something you should be wishy-washy with (if you are, you’ll never be effective).
The cleaner and clearer your investment criteria, the more efficient you’ll be at evaluating potential investments, and the more efficient you are, the more likely you are of scoring major success.
For example, if you’re an investor looking to make the ‘right move’ in a frothy real estate market, you need to consider a lot of properties. How many?—It might sound crazy, but it’s pretty reasonable to evaluate 100 or more properties in search of that one, fantastic investment opportunity.
Looking at 100 properties is no easy task, but it’s made all the more complicated (and slow) if you don’t have a straightforward investment criteria to follow. A razor-sharp criteria makes it easy to say “no” to most properties at a glance, saving a ton of your time in the short term and a lot of headaches in the long term.
While there are a number of things your investment criteria can do for you, we’re going to focus on the big three in the rest of this email.
#1 - Define your workload
How much do you want to work?—Because real estate investing can be as time consuming as you want it to be.
Using your investment criteria, it’s your responsibility to determine exactly how involved you want to be and, based on that, what kind of properties you should be considering.
For example, your criteria can help you decide whether you should put your money into fixer-uppers that you can flip, or whether you should be putting your money into set-it-and-forget-it properties you can rent for years on end for steady cash flow.
Of course, workload isn’t limited to the purchase itself—property management is a huge consideration.
Depending on the type of property you get involved in, the week-to-week (and in some cases, day-to-day) managerial responsibilities can be huge. From collecting rent, to managing utilities when meters are shared, to maintaining common areas and landscaping, there’s a lot of little things to do and they add up quickly.
#2 - Consider your cash
Using your investment criteria as a guide, you can start to get a clear picture of how much cash you might need to have to find the type of property you’re looking for.
Based on the number you arrive at, you’ll be able to quickly eliminate a percentage of properties on the market that you might have otherwise spent your time and energy evaluating.
You may want to buy a single-family home in Redondo Beach that you can use a short-term rental property, but if after examining your criteria its apparent that you lack the capital required, you’ll be forced to adjust your expectations.
#3 - Set your schedule
Piggybacking off the notion of cash, your investment criteria can and should help you get clear on your ROI timeline.
In other words, when do you actually need this investment to start paying off?
Do you require positive cashflows ASAP? Can you afford to deal with below market rents of the property you purchase is occupied? Are you financially stable enough that, even if the market tumbles a bit, you can wait out any value-related turbulence until such time as the market recovers?
Your investment criteria should paint a clear picture of how long you can afford to be in the red.
Smarter not harder
Real estate investing shouldn’t be a lot of “YES!”, it should be a lot of “NO!”
Given how expensive and illiquid real estate can be, you need to be damn sure the purchase you’re making is the right one for you, which is why you will be well served by developing a thorough investment criteria and using that criteria to disqualify the vast majority of the properties you look at.
Always remember that an amateur property investor isn’t laser focused on what they want, which is why they struggle to make winning decisions in critical moments. A professional investor knows exactly what they want, which is why when the moment is right they can strike without a second of hesitation.
The good news is, with your investment criteria at your side, behaving like a professional real estate investor is within your reach.
In closing, let me say one more thing…
It can be daunting to create your own investment criteria…I get that.
So, if you’d like some help, reach out to me about a complimentary 1-on-1 “criteria consultation” at ShannonShue@KW.com or 310-853-0335.
Believe it or not, I really am here to help.
-Shannon
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