The Ten Deadly Deal Analysis Disasters

MISTAKE #1.

Taking TOO Long: Good deals don't wait around for indecisive people.
Many people "think a deal to death." The best way I know to lower your
anxiety level with a deal is to move forward provisionally (i.e. with
a subject to clause or liquidated damages clause of some sort.)

MISTAKE #2

Trusting Seller's Numbers: Even if they have only good intentions,
most sellers just aren't knowledgeable and all of them are inherently
biased at least a bit. The most common problems with a seller's
numbers are pretty obvious-they think the value is too high (often
times confusing "listing prices" of local homes with actual "selling
prices"), and they think the cost to fix it up is too low.

MISTAKE #3

Trusting "appraisals": An appraisal really isn't meaningful, unless
YOU hired the appraiser, and YOU gave them the instructions, and YOU
are handing the appraiser the check. I can influence an appraiser to
appraise a "$100,000" house for as little as $80,000 and as high as
$120,000 (or more). That's close to a 40% variance on the two
appraisals of the same property! So take any "appraisal" the seller
hands you in the spirit that it was intended, as a MARKETING piece!
The best appraisals are ones that you hire the appraiser and give them
their instructions. If I really want an appraisal to be accurate then
I choose a reliable appraiser I've used before and ask her, "What
would this house need to be priced at to sell in 90 days or less?"
This should give you a conservative estimation of value.

MISTAKE #4

Doing your math in pencil: The next time you catch yourself thinking
it's okay to "fudge" your numbers a little to make the deal cash flow
or the rehab payoff on paper, BEWARE! Some investors have a tendency
to "play" with the number a little to make them show a marginal deal
is better than it really is. Remember, just because the deal makes a
profit on paper doesn't mean you'll make money in the real world.

MISTAKE #5

Overestimating the market rents: This one happens all the time. The
way you know what a house will rent for is to do a market rent survey.
The rents listed in the paper or that a real estate agent told you may
or may not be accurate.

MISTAKE #6

Overestimating the "as is" value: So many investors forget that to
turn a house in 90 days or less requires the price to be REAL, not pie
in the sky. What would it really take to get the house into top
showing condition? Be careful to be conservative in your estimate of
value going into the deal. The worst case then is that you make MORE
money!

MISTAKE #7

Getting bogged down in process... Learn to trust your due diligence
and evaluation process and make sure it is checklist driven. This is
your best insurance that you'll do it the right way every time.

MISTAKE #8

Worrying about the house on the Quick View step: On your first pass,
you are only concerned about three things: 1. What is the real market
value of the house? 2. Is your price right? 3. If you are planning on
holding onto the property long term, will it cash flow?

MISTAKE #9

Underestimating the time it will take to Flip / Fix / Fill / Sell:
I've bought a lot of houses from investors who got stuck with holding
costs being too much for them to handle. Be careful here. If your exit
strategy is to sell the house to a retail cash buyer it will need to
be in showing condition or you'll struggle to find a quality retail
cash buyer. Always be conservative with how long it will take you to
execute your exit strategy and if possible, build in a healthy cushion
of extra time.

MISTAKE #10(The Biggest Deadly Deal Disaster of All)

Hiding behind analysis because you are afraid to pull the trigger on
the deal! At a certain point as an investor you will need to step
forward in the deal and commit.