Let me warn you: This will be a difficult step. There will be so many things that will conspire against you to get you stuck on this one.
First, I’d like to remind you why you are here. I was doing my daily exercise. When I’m on the treadmill, I watch Netflix. I happen to be in the middle of Better Call Saul, a quality show, not for everyone, but I suggest you take a look. Jimmy is a regular screw up and he did it again. But this time, it blew back on his on-again-off-again girlfriend, Kim. She is a lawyer and because of Jimmy her boss took away her office and sent her to the dark basement to sort files or something as punishment. Jimmy goes down there to apologize and she ends up telling him that what he did was terrible. At one point, and this is when it hit me, she looks at him and says “I need this job.” The rest of the plot is unimportant to you and me but when Kim said that I thought of myself, and you, and so many others who are stuck.
Kim was so reliant on that income that she felt beholden to her boss. She was completely dependent. So much that if she lost that job, she wouldn’t be able to survive. She didn’t say why she needed that job but I’ll bet it had something to do with paying her bills. She didn’t have any inkling of a plan, and so she had to do exactly what that boss said to do, even if it meant sorting files in a dark basement. Her boss didn’t need her (otherwise she would be doing her job arguing in a court room) but she needed her boss. What a horrible position to be in. Free yourself!
Now on to Step 4: Act
By now, you have the money you need in a savings account ready to go. You have a plan that outlines exactly what you need to do this year. You have the will to change your financial outlook. You are ready to act. You just need a Deal.
In future articles, we will talk about how deals are found. Right now, we are simply going for an overview of the process. You need to get yourself exposure to the possible deals that are out there now. I chose to get my real estate license and use the MLS (Multiple Listing Service). The benefit is that the offers are all readily available. The downside is that most of the offers on the MLS are retail. That is to say, retail prices, not the discounts you will need to get going. There are gems to be found on the MLS, it just takes time and many, many offers, most of which are rejected.
In my experience, the better deals come from networking. For instance, a competitor hears of a deal from a friend but he is focusing on other areas. He wants to help this friend. The competitor knows you and refers the friend to you. In order for this to work, you need to get yourself involved in any real estate group/organization in your area. Don’t worry if you don’t have a focus yet. Simply getting your name out there is the important part.
You need to start looking at offers and evaluating them. You may find that you don’t have the money yet to purchase, but the very fact that you are evaluating deals gives you knowledge you can use for the next deals. What you will do is get to the point where you can see bad deals immediately and weed them out. Then you will narrow down your opportunities to the possibly good ones. Next you will run the math and find which ones are feasible.
Last is to look at the property and then make an offer. Sometimes not in that order, but that will come later.
Make Your Move
Honestly, this is the easiest thing you can do. Once you realize that you will have so many ways to get out of a deal (something called a contingency) you will have no fear of making an offer.
Right now, you will be scared out of your pants. You will recall what it was like when you purchased your house. There were so many things to do, questions to ask, contractors to call, estimates to be made. Worse, you got emotionally attached to that house, and you had to have it. You felt like you paid too much and you had buyer’s remorse.
You wondered if you had inspections done for every possible problem. There was a leak in the plumbing after a year and it wasn’t predicted by your inspector. Hail damaged the roof after five years and you needed an insurance claim. Thank goodness you had insurance. The fears start to paralyze you.
You Make This Sound Great, But There are So Many Ways It Can Crash and Burn
You are thinking about investing in real estate and the questions start to creep in: What if I forget to get my investment insured? What if a 100 year flood happens? What if the seller lied to me about some important thing? What if I lose my job and I can’t pay the mortgage? What will my family/friends think about spending my money on investment properties? Uncle Larry had a rental property and they trashed the place. What if they do that to me? These and a million other fears will start to creep in and you will need to answer every one for yourself and your spouse.
What if a flood happens? There will be things that you cannot control. You will need to take risks. Risks are not absolute; they are about probability. I may have a heart attack tomorrow, but I don’t live in a hospital constantly on the heart monitors waiting for it to happen. I take a risk by not doing so, but the probability of a heart attack is low enough, that I go about my life.
I take care of patients with chest pain every day. Doctors have become very good about educating people about the risk of heart attack. We have put this fear into people in order to get them to the ER, but we know that only a tiny fraction of people with chest pain actually have a problem with their heart. Chest pain can come from many more things than the heart, most of them not dangerous. We would rather see 99 healthy people and send them home healthy than miss the 1 with a heart attack. In the end the 99 wish they wouldn’t have come in but the 1 is eternally grateful.
Sandra was one of the 99. Of course, I didn’t know that immediately. I needed to go through what we call the ‘chest pain workup’. The workup is tailored to the individual, but it consists of an electrocardiogram (EKG), some blood work, giving some aspirin and maybe nitroglycerine, and a long boring wait in the ER. At the end of the visit, I told Sandra that her tests were normal and the conversation went like this:
Me: Your tests are all back and they looked really good.
Sandra: So there is nothing wrong with me?
Me: Well, I really can’t tell you that, I can just test for a heart attack with the best methods we have, but we do know that there is still a risk.
Sandra: There might be something wrong with my heart?
Me: Yes, but the likelihood is much lower than when you came in because of the normal tests we found.
Sandra: Then, what is the likelihood?
Me: Very low.
Sandra: OK, so what caused my chest pain?
Me: I have no idea.
All right, I made that last part up. But in reality, I didn’t really know what was causing her chest pain, just that it was unlikely to be a heart attack. But, she still had some risk. Actually, for her it was about a 1% risk in the next 6 weeks. 1 in 100 people that go home at this point will have a major adverse cardiac event (like a heart attack) in this time frame. Still not that great though, but it is just about the best we can do without causing more risk by doing invasive testing.
I couldn’t tell Sandra that she was completely fine. In fact, I can never tell anyone that honestly. Because doctors deal in probabilities. Much like you will in terms of risk to your investment. You will take the steps you can to minimize the risk but at a certain point, you will either believe that the benefits outweigh the risks and you will Act, or you will believe the risk outweigh the benefits and you will sit it out.
Let’s be clear, I’m not talking about real estate investing in general. You have already committed to the process. I’m talking about the individual investment. Sometimes it is good to walk away because the risk is too great. I probably purchase 1 out of 50 deals I evaluate. Others say it is more like 1 out of 100. Getting out there and evaluating deals will get you there. You will find the one where the numbers work and you will Act. Don’t delay when this happens. Once you’ve evaluated the risk, don’t let your unfounded fears stop you.
We will talk in detail about the actual process of making the purchase, for now, just understand that Acting is the next step in your process. You will do this over and over again to build your investment portfolio. It will gradually take you to Step 5; Build.
Continue Your Action and You Will Build Your Retirement Plan