Your Investment Style – Tire Kicker or Deal Maker?
Posted by: Bart Schroeder on: May 22, 2009
Over the years, we’ve learned that many of our fellow real estate investors tend to share common characteristics which are predictive of success (and lack thereof) in this business. Two of the more common “types” of players in this game are what we call tire kickers and deal makers.
Tire Kicker
|
Deal Maker
|
| Looks at dozens of properties and talks a great game, but doesn’t really know enough to take decisive action. |
Knows how to close the gap between the offered and asking price and successfully close deals. |
| Has little knowledge of the market or what he is looking for. |
Knows where to invest because he has researched the market, knows what to look for, and doesn’t waste time looking at properties that do not fit his criteria. |
| Has not established lender relationships or business plan and asks every seller for 100% financing |
Has existing lender relationships, can bid an all-cash price, or can assume existing loans. |
| Figures he can manage the property cheaper–not by improving the operation, but by cutting corners |
Knows exactly how he will manage and improve the property and anticipates the costs. |
| Bases the valuation on the operations as stated |
Uses a normalized, forward-looking projection that reflects his operation of the property and the effects of an improvement plan |
| Attempts to make one deal structure fit every situation (e.g., seller financing) |
Discovers the seller’s most pressing need and structures the offer accordingly. |
| Will capitalize the net operating income at a “market rate” for valuation |
Will be more aggressive and use a rate that reflects their own return and loan requirements. |
| Figures he can manage the property cheaper–not by improving the operation, but by cutting corners |
Knows exactly how he will manage and improve the property and anticipates the costs. |
Interestingly, years of experience does not automatically mean a buyer is a dealmaker, nor is a new investor a guaranteed tire kicker. The determining factor is the extent of the investor’s preparation. In a nutshell, dealmakers take the time to think things through. True dealmakers are easy to spot. They know their financial capacity in cash and credit; they have criteria for property type, market, and minimum return requirements along with a business plan that addresses those criteria. They use the tools of financial measurement to quickly evaluate the property, then formulate a game plan and deal structure that allow achievement of their goals. They are ready to act when the opportunity appears.
For more information, including a free consultation, send us a request at REInvest Group.
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