Biggest Ah-ha Lessons Learned Since the 2006 Real Estate CollapsePosted on September 6, 2011 by
Most folks agree that the real estate bubble popped in June 2006. Can you believe that was more than five years ago? Sadly, property values are still falling. Well, so much for all that “Hope and Change” and “Government is the Answer” nonsense.
The way real estate investors do business today looks N-O-T-H-I-N-G like it did back before the real estate market collapsed. We’ve all learned a lot of life-changing lessons during this downturn. It’s important that we recognize and remember these lessons.
With this goal in mind, this summer, Kim and I put together a number of pontoon boat cruises on Lake Allatoona. Each trip, we gathered together a boatload of successful real estate investors and puttered around the lake as we discussed real estate investing strategies.
These little cruises were incredibly fruitful. Tons of great information was shared. The best nuggets came when folks answered the question: What’s the biggest ah-ha lesson you’ve learned since the 2006 collapse? Here are some of the best answers:
Debt is your ENEMY! This is, by far, the biggest and most important ah-ha lesson most of us have learned. Whether you’re talking about credit cards, HELOCs, pulling money out of your deals, etc., debt is the biggest thing successful investors have learned to avoid. The days of buying a house and pulling money out of the deal to buy a shiny red thing that honks are long gone.
Rental property needs lots of cash flow. Too many landlords learned this lesson the hard way. When rental rates began dropping in 2007, because so many investors were too tight in their deals, the negative monthly cash flow caused them to lose their investment properties. If a deal doesn’t have at least $300 a month in positive cash flow, it’s often wise to pass on it.
If your goal is to flip a property, be sure it has a TON of equity. These days, to successfully quick-sale a property, you must buy really, really, really low, and then sell it really, really low. You cannot count on appreciation to help you out if you pay too much.
Do conservative deals. Back in the day, lots of investors did deals just to do deals. They didn’t worry too much about a deal’s numbers because values were skyrocketing. Appreciation cured all mistakes. These days, with falling values, your deals must be ultra conservative.
Don’t do lots of deals at one time. In 2005, it was common to buy four or five properties a month. These days, we often won’t do a second deal until the deal we’re working on is done.
Because of the popularity, we’re taking the cruise idea to a whole new level. In January 2013, we’re doing a five-day Captains of the Deal Caribbean Cruise with Dyches Boddiford and Pete Fortunato. For more information, go to CaptainsOfTheDeal.com.
Rehabbing the property would have cost a minimum of $8,000. Once the $8,000 rehab was done, I would own a $3,000 trailer. This would give me a net loss of $5,000.
So remember, when you’re looking at deals, the answer to the question, “Is this a good deal?” is, “It depends.”