One of the most important things real estate investors need to understand is how to properly underwrite an investment deal and that starts with “Trust, but verify.”
Do you ever look at a deal and see what price the seller bought it for and what price they are now selling it for? Does that matter to you if it’s a good deal or not? The answer is it shouldn’t. As long as the sale price still meets your deal criteria, it’s a deal. Don’t worry about what the seller bought the property for and why you missed out on that price, or why you’re paying so much more.
Another common stumbling block that new investors struggle with is they don’t have the seller’s P&L (profit and loss) numbers to underwrite a deal. So they are unable to determine if it’s a good deal or not. The truth is it doesn’t matter what the seller’s actual numbers are. Most sellers don’t even know their own numbers. Whether you have the seller’s numbers or a broker’s proforma (“projections”), you need to verify if that data is accurate. Why does it not matter? Because you are the one who’s buying it. You need to check to make sure that those numbers that are on the piece of paper, actually make sense and are attainable.
In addition, I hope that you’re not just buying properties because you think they look good on paper. It would help if you did your underwriting to ensure that the deals pencil out and you’re not being fed an overly rosy projection. This is especially important in this low inventory market. As the low-hanging fruit, good deals come out. Everyone is chasing these, so you likely have very little chance. However, as a savvy investor, you must understand your market better than everyone else. You need to know what’s possible and what’s not. And you need to know that when looking at potential deals, they are either duds in disguise or hidden gems.
And if you don’t have that experience or expertise yet, then you partner with a realtor that is experienced and has that local expertise of the market to help guide you.