My Non-Negotiables for Real Estate to Avoid Massive Headaches

Hey there,

In the age of ‘AI” I really want to start out by reminding you…I wrote this personally, with all the errors.  Weird that I must state that these days.  I hope you get something out of this!

Throughout my career investing in real estate, I have made almost every mistake and have an incredible amount of weird things happen on deals.  Sometimes, a ‘new’ weird thing happens or we make a mistake somewhere, and it usually makes me think “of course this happened, it’s supposed to happen because I am a martyr for house flippers…”

Running into so many challenges over the years is not all bad.  All the times we had change orders, messed up underwriting, pulled the wrong comps, went over budget, break ins, fires, losses, etc… Allowed us to get better and better every time and create better processes to create a better business.  I owe all these challenges for helping me create my business that I have today (and give me super thick skin). 

BUT!  I do NOT want any more challenges (problems).  Because of this, I wrote out my NINE Non – Negotiables in my business.  These are MY internal rules for how I invest in real estate and they were created in blood (and tears…but mostly from losing money).  These non-negotiables are exactly what they sound like, we do NOT negotiate on these.  The stronger I am on holding to these ‘rules’ of mine, the more likely I will avoid any challenges when investing (and more importantly, reduce a ton of stress)

My NINE Non-Negotiables for Real Estate Investing (ranked in order of importance to me)

1.  Objective Math Determines the Deal: The key word here is OBJECTIVE…not subjective.  It’s so easy to make a spreadsheet say whatever you ‘feel’ it should be.  Hard data, comps, numbers, etc are everything.  As my good friend Ken McElroy says “real estate is math” and in my opinion the math can be skewed if you are not careful

2.  Mitigate the risks first, then look at the gain:  Talk to any big time investor, wall street fund manager, venture capitalist, whoever, when they look at a prospective deal they will always look at what their downside is first (not the gain).  A sure way to lose money one day, is to only focus on the gain.  There is A LOT I can write and teach about mitigating risks on a single family real estate deal, just know that my entire focus on a deal prior to purchasing is to find all the risks involved and determine if we can mitigate them or not.  That’s part of solid underwriting.

3.  Never Buy Outside of the Buy Box: There is a reason we create a buy box, its so that we only buy things within that box.  This means, anything outside of this box is a immediate NO.  Don’t even look at it.  If you want to venture out of the box…then change your box, but do it with intention and a plan.  The deals I have lost money on are usually the ones that were just out of our buy box…

4.  My Gut is Right:  This one just comes from years of investing, and having my ‘spider sense’ develop from all the crazy crap that has happened to me in this business.  There is a reason I am having a ‘bad feeling’ about a deal, a contractor, a lender, a person, a number, etc.  I have learned the hard way that I MUST listen to my gut, it is right.  The risk if ignoring my gut, is not worth the pain of finding out later it was right.

5.  Never Bet on Appreciation…NEVER!  Appreciation is a bonus, not a guarantee.  If the deal only works cause it might appreciate, its not a deal for me.  I LOVE APPRECIATION on properties that I own.  It’s the BEST!  But, I can never bet on it.  Too many people have been burned by alure of potential appreciation.  The only appreciation I can even remotely control is FORCED APPRECIATION through construction/rehab/etc and even then, it’s not always guaranteed

6.  Negative Cash Flowing Assets are NOT My Assets: Going back to the sacred text of Rich Dad Poor Dad, it’s not an asset if it takes money away from you.  I do not keep properties that cash flow negative.  If I really want to keep a property and I have to leave/invest a bunch of money into it in order to get the loan payment low enough to make the property cash flow…well…I guess I am leaving a bunch of money into it then (but only if I really want to keep the property, otherwise I just sell it).

7.  If I Have to go to a property in order to make a deal work…then it’s not a deal for me:  This one is purely for two reasons.  First, it was created for MY lifestyle.  I personally do not want to have to go to a property.  Someone has to go to it, but it doesn’t have to be me.  I am VERY firm on this.  Second, if it’s the type of property that we can underwrite and manage confidently without me going to it, then it is probably simple enough for us to not have too many surprises during the project.  This doesn’t mean I buy ‘simple deals’ based on most investor standards (most of our rehabs are between $100k-150k currently), it means they are simple for me and my business and the type of deal we have done many times before.

8.  I Don’t Ever HAVE to Buy Anything: Never, ever, mentally or financially put yourself in a position where you HAVE TO BUY SOMETHING.  Nothing good ever comes from this.  Emotion creeps up, and things can become overlooked.  There is always another deal, see non-negotiable #1

9.  Be ever Vigilant of Confirmation Bias…It’s Insidious:  Just because I had success in something before, doesn’t mean I will have success again.  Confirmation bias can creep in on us without us knowing.  We have success in one neighborhood, we think we will have success there again.  We go over budget on a house, but the house sells for more due to appreciation, we think that it’s ok to do that again (especially if it has happened more than one…ie 2021).  Is that neighborhood really a great neighborhood to invest in?  Or am I just looking for reasons it is, because I believe it is?  Go back to #1 for real confirmation, or not. 

Announcements:

If you are looking for one of the best “HOW TO” real estate investor conferences out there, then join Brandon Turner and I at the REI Summit June 1-3 in Austin Texas (www.reisummit2024.com).

Whether you are like me and have been getting after it for years, or just starting out, this event has something for you.

TICKET PRICES GO UP THIS FRIDAY at midnight. 

Save $300 off your ticket before prices increase this week.

Use discount code Tarl10 for another 10% off and save even more. 

Talk soon,

Tarl