JULY MEETING – “The Best REIS Meeting, yet!”

That’s what members and guests said about July’s Investor Meeting. Pat Bell, REIS Member and Mortgage Broker with M-Lend, presented a case study on one of his recent personal investment endeavors. In sharp contrast to other case study presentations, Pat’s premise was that he had a “Gut Feeling” about this deal and he acted on his gut. Admittedly, it’s not necessarily the way an investor should run a real estate investment business, but that was his story and he stuck to it—basically. Pat’s deal was a Bladensburg rambler, about 50 years old. This home had significant water infiltration problems and extensive mold. It also needed the usual kitchen, bath, windows, paint and carpet. He knew what he had to pay for the property and he had a rough idea of the worst-case renovated resale value. But, while he did not do the math to the penny in the planning process, it became evident that his 25+ years of experience enable him reasonably accurately ballpark the cost of renovations. Further, he used contractors he knew quite well and a few contractors who were referred to him by long-time friends. This gave him a sense that he was getting fair bids without going through the competitive bidding process.

In the final analysis, Pat did pay more for the renovations than planned, but his worst-case final sales price was some $40,000 less than the price he actually received. So, all’s well that ends well—he realized about a $37,000 profit on the deal. That made it all right—not so fast. Here’s where Pat was challenged by members, guests and former speaker, Roosevelt Lafontant, whose presentation was just the opposite. Roosevelt likes to enter a deal knowing exactly what the renovation cost will be and how many minutes it will take so he can peg his carrying costs. While it was a lively discussion, it demonstrated that there is more than one way to succeed at a real estate investment, but that Pat’s profit came partly from his experience and mostly from luck.

Many of us start our investing careers on gut instinct—some have reliable guts; some not so. But, with experience, we learn approximately what it costs to do a new roof, to paint, to waterproof a basement and so on. With that experience, it might sound like we’re operating from the gut, but, in fact, we are relying on experience. The danger is that prices change, job scopes change, the contractors we use change and not all contractors offer the same pricing. So, only by carefully planning can we enter a deal knowing accurately how we will exit, but that is not to say that failing to plan every detail ensures failure. Experience and gut do play a major role in real estate investing. After all, even if you plan to the nth degree, the market can change over the course of 90 to 180 days thereby destroying the best laid plans. Planning does not ensure success. Failing to plan does not ensure failure. Experience is a valuable tool, but detailed planning is a critical element in reducing the risk associated with real estate investing.

Next Meeting: August 17 at 6:30 PM