Seattle, Bellevue, and King County Real Estate Blog

Being Selective

Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This does not mean that profitable investments aren’t still available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and today’s topic is “Selectivity with Professionals.”  Stay tuned for part three...

Part 2: Selectivity with Professionals

Though a lot of real estate investors find success without routinely depending on real estate industry professionals, it is always important to have some in your back pocket whether you are a seasoned or first time investor. There are many facets of being an investor that require consistent attention to ensure continued prosperity and legal compliance. Accordingly, an investor needs to have professionals he can trust with the likes of Inspectors, Certified Public Accountants, Mortgage Professionals, Financial Planners, Real Estate Agents, Real Estate Attorneys, and Escrow Officers to name a handful. These professionals can make or break an investor’s success. In all honesty, there are good professionals out there and there are ones to avoid, which is why it is important to select each professional with care as someone you trust to keep your best interests at the forefront of their actions.

Let’s take real estate agents as an example. I will be the first to admit that there are agents out there just looking to complete a deal and get paid a commission. This was especially true during the last few years when many people got their license trying to make a quick buck in our frenzied market. One good result of our changing market is that the change is weeding out those agents, so a greater majority of the ones still standing are the agents who take their profession and their clients very seriously. With a careful eye focused on perceptions and actions, it is easy to differentiate between these two types of agents. As an asset to the investor, a trusted agent should be one of the first people you talk to in considering an investment. A trusted agent can help you determine, or be an alternate opinion on such basics as current market value, appreciation trends in the given area, after repair value as well as many more insights about a home and area based on the vision their day to day activities as a real estate professional affords.

With my clients, I am always sure to examine all angles to help that client make up their mind on an investment. Your trusted real estate professionals should be individuals that don’t just tell you what you want to hear, but lend you the advice and perceptions they have as an expert in the industry, whether it is a positive or negative aspect of a potential investment. As the investor, it is your job to sort through the pluses and minuses that your real estate professionals help you determine to ultimately decide if a potential investment meets your criteria while staying within your accepted risk range.

Stay tuned for insight into choosing the right investments when I post Part 3: Selectivity with Investments.

    Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This doesn’t mean that profitable investments aren’t still available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and today’s topic is “Selectivity with Business Partners.” Stay tuned for the other two topics…

Part 1: Selectivity with Business Partners

    Creating a business relationship with another investor can often make the difference in one’s ability to move forward on an investment. Sometimes this is done out of necessity, for example, someone who has assets or is willing to perform work on a home but has poor credit may partner with an investor with exceptional credit. Do not get me wrong as this is always a method that should be examined if an investor is having problems getting into an investment. However, these business partner relationships can eventually lead to the undoing of a profitable investment so it is important to carefully examine a potential business partner.

    As an example, I recently spoke with an investor who had gotten into their first investment with a friend, well, maybe we should consider it more of an acquaintance. The differences in opinion between the two investors led to additional months of holding costs while the promises the acquaintance made were never backed up in regards to construction costs, etc. Unfortunately, the relationship soured and now the investor is left with a home that will result in a loss if sold at market value. To be perfectly fair, there was more to it than just disagreements amongst the two investors, but it did indeed add extra lighter fluid to the fire.

    This is just one example and I have seen plenty of instances where partnerships succeed, yet I have even seen partnerships amongst friends sour. The point here is that investing in real estate is a big deal. There is a lot of money to be made in real estate so people always need to be careful with their investing, which includes selecting a business partner if applicable.

    I recently came across an article from www.inc.com that provides a solid guideline for choosing an investment partner. Although the article was geared toward finding an investment partner for an entrepreneurial business, the five basic suggestions for evaluating a business partner it provided hold true for real estate investing. I’ve listed them below with some of my personal thoughts to consider when making your evaluation.

#1 Understand Your Needs:

    Know your goals, level of risk you are willing to face, and know your comfort level with the risk and exit plans for a given investment. Does this match your potential business partner? Be sure to take a bird’s eye view and determine any possible outcomes any differences may result in. If the differences are too great then it isn’t likely a strong fit.

#2 Evaluate the Potential Business Partner’s Track Record:

    Get some history on this potential partner. Have they burned anyone in the past? Have they had any legal problems arise from past investments? These are important questions as the right or wrong answer will help determine your initial level of trust with this individual.

#3 Make Sure the Culture Fits:

    There’s no rule stating you need to be spitting images of one another, but do your morals, ethics, and values align? You may end up being polar opposites in regards to skills, etc, but a like minded set of values can be what keeps you on a successful track as a pair.

#4 Stability:

    Is the potential business partner level-headed and steady? I’m not saying that it is a must to be level headed and steady to have a successful partnership, but it is a must to determine whether or not you want to deal with some who may be flaky or wishy-washy. Again, consider the potential pitfalls that may arise due to an unaccountable partner.

#5 Trust:

    I mentioned this before, but it deserves its own category. Although it can take some people years to fully trust someone, it is still be possible to find the needed level of trust to move forward with a business partner. This refers back to each of the preceding tips and deserves much thought when considering a potential business partner. Do you trust what you know so far about this person and is that enough for you?