Do your homework so you can take advantage of a deal when it appears

While getting wealthy in real estate is a long-term game, there are times when you need to be able to move fast. Sometimes really fast.

As much as it would be nice to be able to take as much time as you want to decide whether or not to make an investment, that isn’t reality. It isn’t the case in the stock market, where prices fluctuate constantly, and you need to be ready to buy when the price is right before it rebounds. And it isn’t the case in real estate investing where a specific property only comes up for sale every few years.

One of the big opportunities is presented by the broader real estate market cycles. When times are tough, more deals appear as people need to sell their assets and buyers are scarce. When times are great, those deals become harder to find as everyone is looking for assets to buy and competition on a property drives up prices. As counter-intuitive as it sounds, this means that the time to focus on finding deals is when everyone thinks the market is bad.

Similarly, the availability and cost of credit varies over time. During boom times, money is cheap and easy to get – think of the dot com boom, where anyone with a domain name could get venture capital, or two years ago when you could borrow money for your house with a 30 year fixed rate mortgage at under 3%. But cheap money doesn’t last forever. In 2009, it was extremely hard to get a loan, even with good credit, for your primary home. Then, as is happening now, lenders tighten up their underwriting criteria, lend less compared to the value of the asset, and charge more to access the money. If you didn’t take advantage of the opportunity to borrow at a low rate when it was available, it is too late. At least for a while.

While these cycles can take years to occur, if you aren’t ready to take advantage of them when they appear you are likely to miss them.

Within the broader cycles, specific opportunities have a much shorter time span. A property comes on the market and, once bought, won’t reappear for years. If the property is a particularly good deal, it will be purchased by someone quickly. Similarly for investments in syndications, most deals have a maximum investment they are able to take and once they fill up, you are not going to be able to participate. The better the deal, the more people who are interested in it and the faster the opportunity disappears. If you wait too long to make a decision, you won’t be able to participate.

In order to take advantage of opportunities during the short time that they are available, it is critical to do your homework in advance, before the deal appears. You should know what your investment philosophy is [1], what asset classes you are interested in and why, what you are looking for in the market, what risk you are willing to take (and for what return), and how much you want to invest in any given deal. You should also be talking to sponsors and performing your due diligence on them. And finally, you should take the opportunity to broaden your education – read books (including [2]), listen to podcasts, and attend events.

By doing this work in advance you can take the time to think through all of the options and make informed decisions about what works best for you. This gives you the foundation on which to evaluate specific deals. Then, when an opportunity presents itself, you are able to quickly determine if it is of interest to you.

For any given opportunity, there will always be some deal specific due diligence required. You need to determine how the specific opportunity fits within your investing criteria and address any property specific concerns.

By already having the foundation for what constitutes a good deal for you, the amount of work you have to do in the limited time the deal is available is substantially reduced. You can quickly determine if the opportunity is worth spending time looking into based on whether or not it matches your broader criteria. Assuming that there aren’t any red flags, this foundation also helps you avoid “analysis paralysis”, because you have already thought through the possibilities and decided your investment criteria.

While it is easy to get excited and start trying to get everything done when a deal presents itself, by then it can be too late. Or at least, too late to do everything well.

While no-one likes to hear “limited time offer”, the unfortunate reality of good opportunities is that they are only available for short periods of time. If you take the time to do your homework before the deal appears you will not only be able to take advantage of it, you will have more confidence in your decision because you aren’t making it in haste. You know what a good deal looks like and are able to take advantage of the opportunity instead of letting it pass you by.

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This article is my opinion only, it is not legal, tax, or financial advice. Always do your own research and due diligence. Always consult your lawyer for legal advice, CPA for tax advice, and financial advisor for financial advice.