In a recent post I talked about my friend Big Artie and his son, Little Artie and their latest real estate venture. Here are some additional lessons we can take from this exchange:
- The money in real estate is made on the buy. Your basis in a deal will dictate your outcome. Don’t ever count on market growth to bail you out. There is always risk but you can minimize it by being smart on the buy.
- Be conservative in your cash flow projections. Lying to oneself is very easy and is a deadly trap for the small investor. Hire an expert and pay him (or her) handsomely. My telephone number is 732-380-0880.
- Trophies are for Trump. The most money to be made is taking a “C-Minus” property and making it a “B” property. I will discuss “Value Added” investing in a future post. Promise.
- Try to do as much work yourself as possible, at least early on. Full disclosure: Big Artie is in the real estate business and knows his way around a cap rate and a hammer, which makes him at least twice the man I am.
- Have an exit plan. Big Artie’s prospective deal has not one but two solid exits: (1) he can fix the place up and improve the cash flow which will allow him to sell higher. Our best guess is that he can double his money in about two years (see “Buy” advice above). (2) Big Artie can approach the owner of the adjacent highway corner parcel about assembling the two lots for commercial development. The upside on a deal like this is very high.
Real estate investing is easy and profitable if you obey these simple rules. There are few secrets and common sense will take you a long way.
Now go make some money.