One of the most common ailments for new investors is what is
known as the “Shiny Object Syndrome.” It is an affliction with adversely
affects the investor’s ability to focus, and negatively impacts their profit
potential. Let’s examine the causes and symptoms associated with Shiny Object
Syndrome.
A new real estate investor gets excited about investing in
real estate and starts out with the intention of “wholesaling.” “Wholesaling”
means buying a property at a low price and selling it at a low price, just like
wholesale commodities which are bought and sold to buyers who will then add
value before mark-up for the retail market. Wholesaling involves finding the
deals. Find the deal and get it under contract, then flip it to another buyer
with enough room for significant profit.
The most effective strategy for wholesaling is to find the
BUYER first, rather than the property. Most new investors get this backwards.
They get so excited about finding “deals” that they think their buyers will
automatically materialize when they get something under contract. Not very
effective, and here’s why.
Every real estate investment association is filled with
investors who buy properties. Many of them buy unlisted properties from other
association members who “bird dog” by finding them the properties they want.
Find out who in your association is actively buying properties. Then find out
what they want to buy. This is known as “building your buyers list.”
For example, I buy single family homes in good neighborhoods
in the city of Seattle, that have three bedrooms, two baths, at least 1200 sf,
and that retail for less than $400,000. I prefer houses that have some kind of
off-street parking, and avoid those on busy arterials or in “war zones.”
So I am not interested when my bird dogs show me vacant land
anywhere, houses in Covington or Puyallup, 21-unit apartment buildings, or
anything out of state. They may or may not be good deals, but they are not my
focus. However, bring me a lead on a
funky three-bedroom single family home in Ballard for under $350,000, and I am
all over it! Find out what your buyers want first, then go find it.
Suddenly the new investor is hit with the first attack of
Shiny Object Syndrome, as his buyers are not interested in any of the deals he has
brought so far. The new investor decides this wholesaling stuff is too hard,
and maybe soliciting underwater sellers for lease options would be easier than
wholesaling. Off he goes, down a new path!
Well, plenty of underwater sellers, but where are the lease
option buyers?
Second attack of Shiny Object Syndrome: new investor hears
about how a lot of investors are making money flipping mobile homes and figures
he has enough money of his own to buy and sell mobile homes. Maybe he buys one
or two, but longs for bigger paydays….
Shiny Object Syndrome is really beginning to incapacitate
this poor new investor. He adds attending the foreclosure auctions to his list
of activities, but can’t recall whether he is looking for properties for
himself? Or for some buyer?
The cure for Shiny Object Syndrome is to keep it simple.
Pick a focus. For most new investors, this means finding the deals, and selling
them to investors who want them. Repeat, until you have the resources and the
experience to do the entire deal yourself.
Stick with the basics and get really good at the path you
have chosen. Follow it through long enough to give it a chance to succeed. Ask
for guidance from more senior investors. Keep the faith, and close off the exit
doors. Be patient and persistent, and you will succeed.
1 comment:
Dear Wendy!
It's Fei here. I can't believe you are the blogger Wendy I have been following!! I love love LOVE your blog. There are many many new investors out there every day, and bumping their heads all over the place, that's why having someone like you sharing your thoughts and experiences is so valuable. :) Can't wait to see you at the next meeting!
XXOO, Fei (& Brian)
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