“Top 10 Mistakes that Make Deals Go Bad” Series – Part 5

# 2 Do a Deal to Keep a Contractor Busy

Our experience over the past decade of lending money to rehab investors has shown that doing a project to keep a contract busy is one of the least profitable ways to invest in real estate.  This reasoning almost always backfires on the investor, both on the current project and on future projects.  Good construction crews are hard to find; however keeping them busy does not make them better.  The investor runs the risk of overpaying and creating idle, unmotivated workers by haphazardly doing a project to keep contractors busy, thus reducing profits.  Contractors, like all people, need the proper incentives to produce good outcomes.  Projects started to keep busy have vague timetables and less specific objectives, which often do not work out in the end.  Making your contractor “fat” will provide the opposite reaction you are looking for, and might create a bad habit that becomes harder to feed.

Instead of making busy work for your contractors, incent them to do better than expected quality work in less time.  Then maybe give them a little extra compensation for a job well done.  They will thank you and come back anytime you have a worthy project ready to rehab.

#1 Fall in Love with the Place

The number one error real estate investors make is becoming emotionally involved, they forget it is a business.  This is a business. Run it like one.  This means unpleasant decisions must be made and implemented from time to time.  You might not like evicting a tenant, but the right business decision calls for it.  Yes, your tenants are humans with real feelings, but they are not your family.  Family gives family a place to stay in a bind, a real estate investors rents for income. Do not adopt your tenants.

Avoid falling in love, not in life, but in real estate. This is a business. You cannot fall in love with a property. When you are in love you are irrational and will do any and all manners of things to get your heart’s desire. The second you hear your inner voice say you HAVE to have this property, you should go back and re-examine the transaction very closely to make sure logic is in agreement with emotions.

A business requires regular attention, and the right business attitude.  Pay attention, do the work, keep it professional, and it will stay profitable.