Serving Westchester County Real Estate Investors

J Philip Faranda August 22, 2010

A smart buy can make you or break you.I have posted before about my philosophy with real estate investor clients. I don’t dislike newbies or amateurs, but I sure do a good job of scaring them about the realities of how expensive a mistake in real estate can be. I know investors who spent $400,000 on properties before the sub prime crisis hit, expecting to sell at $550,000. 18 months later, the house sold for…wait for it…$400,000. Did they break even? NO, they lost big time because of the overhead, taxes, cost of money, and carrying costs. The Great Recession created a great many ex-real estate investors. 

Our best investors pay cash, know what they are doing, are risk averse but decisive, and are eager to make a deal happen but not foolhardy. They have gotten people out of hot water, saved neighborhoods from a vacant foreclosure, helped renters buy their first home, and made strong profits for themselves in the meantime. They don’t watch cable TV shows about flipping houses. They are unimpressed by the amount of money they have in the warehouse, because it is working capital, a tool as much as a truck or plow for their respective trade, and typically devoid of ego. Ego doesn’t make money. 

They also are known more for the possible deals they pass on than the few they do make, because there are way more frogs out there than princes. They never speculate on a property or opportunity they don’t fully understand. Warren Buffett was once asked why he didn’t own more stock in Microsoft, and his explanation was a lesson for us all: He’s not a software guy. He doesn’t know the business, and just because the stock does well doesn’t mean he feels right about buying it. Buffett knows insurance (his area of expertise, actually), Cola, Razors, candy, and other products. That’s where he makes his hay. An investor of mine who does well turning cape cods around will never buy a 30-unit apartment building because even though it might have fantastic cash flow, it is beyond the scope of his expertise- maintenance, management, rent collection, that is not something one wants to learn on the fly with huge money on the line.

An investor in 2010 with brains buys what they know. They don’t leverage much, if at all. They take risks that are calculated but not speculative. And they are also intelligent enough to use an agent like myself who speaks their language. 

If you have the funds to pay cash, know the business and the risks, and are looking for a transaction with a good margin, we should talk. 

If you want to learn the business, are not a cash buyer, or just dream of being a big investor, I’ll talk to you. But what I tell you might scare you away. 

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