Avoid the journey down Investment Properties Pitfall Street
As my Seller and I near the long-awaited closing of his 11-unit apartment complex in the NE section of Portland, OR it was not without a few major obstacles along the way. Despite 20 + years of assisting buyers & sellers with similar commercial transactions no two have been exactly the same thus, this was no different in that respect. Many of the commonplace issues were still there i.e., inspections & appraisals, etc. however, changes to our market, while exciting for the future, are not without a few pitfalls that Real Estate Investors should take into account.
Find the strategy first then the property, not the other way around. Sounds simple enough but a sizable percentage of potential buyers who inquired about this property were working backward in that they liked the potential that existed but, wasn’t certain about a strategy that would help them reach whatever their goals might be. Unlike purchasing a home in which to live with your family where your emotions may set the stage for a transaction, an investment property requires an investment strategy…all together different from viewing it simply as a transaction.
Understand the process first, don’t let the process control you. Education is the key as it’s human nature for many who have been successful in their professional lives to believe that what worked in the past will translate into successfully purchasing & owning an investment property. Although there are exceptions to every rule, allowing yourself to ‘skip’ a few steps up front and play catch up, later on, can result in an irreversible setback. One of our potential buyers, although well qualified from an asset & income standpoint, didn’t grasp the concept that their being ‘ first-time investors’ would not be looked upon favorably as it would in the residential world. Again, simply carrying over what they knew of residential transactions didn’t bode well where an investment strategy was required.
Exercising due diligence, not ducking it. The most obvious are issues that are easiest to see such as deferred maintenance. Needless to say, the lender is concerned about a buyer potentially draining their personal savings due to extensive repairs thus, funds in reserve are a critical component to obtaining financing & can vary widely based on the buyer and the condition of the property. What things to consider knowing about as a part of the due diligence before & during a purchase may come from a checklist your trusted Broker uses however, nobody knows your financial situation as well as you do. A visit to your C.P.A., lender & perhaps someone who is an experienced investment property owner will serve you well in creating a list of issues important to you. Again, this falls back on educating yourself in advance. It’s always a good idea to ‘bring something to the table before meeting with any professional assisting you as it’s unlikely they will be able to lay out every scenario that may present itself in the process.
Even the Lone Ranger had Tonto. Amazingly enough, many potential buyers I spoke with over the term of this listing were not simply unrepresented in regards to having a buyer’s Broker working on their behalf but, had little or no ancillary support to fall back on in the way of contractors, inspectors or other legal specialists. Just as in the case of conducting thorough due diligence, it’s always wise to have all the pieces in place before you actually need them.
Get rich quick, misjudging cash flow. Although the multiple listing sheet available to the public & Broker allows for a considerable amount of information to be shared, it’s never meant to cover all the pertinent information that will be essential to a buyer of investment property. Amazingly enough, the lack of due diligence in asking for information upfront was not limited to just buyers calling on their own but, seasoned Brokers as well. There were several instances of offers written without any information gathering prior to simply sending an offer along, only to find out that a simple upfront question would have avoided the extra effort. If simply left to whatever financial information can be squeezed onto a multiple listing sheet or any place you choose to look on the web, chances are you would still be a far cry from being able to make an informed decision. Taking only some financial information without the remaining pieces to the puzzle is short-sighted, to say the least, and a recipe for those looking to get rich quickly to become cash-flow-poor in a hurry.
Bob Zawaski G.R.I.
Oregon Licensed Principal Broker / Owner
Investors Trust Realty