Amateur (Newbie) Investors

I have blogged before that I want to make sure first-time investors be careful. Real estate mistakes are expensive, they can ruin you, and quite honestly I don't want to see a newbie who won't follow generally accepted practices and loses all their funds. This is not my idea of fun for them.

Near me, there is a home that is in the last stages of renovation in my marketplace that I am well familiar with; I looked at it initially when it was on sale in late 2008, and I looked at it as a bank-owned foreclosure last year. The group of investors I was going to work with passed on it.

***A Lesson for Would Be Investors: Normally speaking, if the home is listed on the MLS for 30 days or more, then the smart investors who flip or rehab and re-sell deemed it not such a great bargain. Most fantastic bargains never make it to the open market.***

So the home sold to a first-time investor, and they interviewed three agents, and wanted their price quotes. They did not like my numbers they received. It didn't give them the profit margin they were shooting for.

***A lesson for Would Be Investors: The buying public does care a lick about what you want or need.***

The folks are personally invested and subjective about their property, and that bias clouds their judgment. They don't see that time is their enemy, or how a stale property listing can doom their investment if it does not sell in an quick fashion in this market.

***A Lesson for Would Be Investors: Never get emotionally attached to a property you are buying and re-selling. The property is not your friend. The numbers are. Math should dictate your actions, not personal bias.***

The investors have done a fabulous restoration of the home. It is a credit to the neighborhood. They should rightly be proud of what they have accomplished. And they should make a profit. But how much profit? (I'll give you a hint: Not as much as they'd "like." Only what the buying public will pay.)

***A Lesson for Would be Investors: "Pigs get fat. Hogs get slaughtered."***

If the house goes on the market overpriced and they chase the market, these folks will see their carrying costs pile up while the buying public watches the house sit unsold, asking what is wrong with the place that it won't sell. In a war of attrition, the buyers win. It costs them nothing to sit and watch.

***A Lesson for Would Be Investors: Time is your enemy.***

My fear is that if this project becomes unprofitable or stresses them out over a long period of time, their real estate investing career will be short. And that will happen if they don't price it right from the start. Great effort will be wasted, and the mind can only wonder at the financial damage.

***A Lesson for Would Be Real Estate Investors: High bidder gets the house-including the current owner.***

And that, my DG family, is why I want first-time real estate investors to be careful. Mistakes cost dearly. And it is better to be safe than sorry.