About a year ago, I worked with two different households who wanted to buy more rental income property. They had many similarities. They both had more than ample net worth, liquidity, rental ownership experience, yet neither had purchased rental income properties in San Diego.
They acted quite differently. One household, the market would call “Hero”, acquired three properties. The Hero household massively upgraded and stabilized two assets and are currently improving the third one. Soon, they’ll be able to sell them at a profit and move up. The other household, the market would call “Zero”, because that’s how many assets they acquired in the same year.
Here’s how Hero and Zero’s behavior compare. I’ve altered some of the details to protect the privacy of both households.
Heroes pounce, Zeros procrastinate
The Hero household went into action quickly. They actively investigated the neighborhoods, thorough research about rents and the markets, and talked with the city and others who could influence what potential might be realized.
The Zero household complained about errors made by their attorney, the title company, the tax assessor, and others. They took two long trips out of the country when they could have been writing offers.
Heroes are realistic about competition, Zeros expect miracles
The Heroes knew there would be multiple offers from unseen competitors on any asset they sought. The Zeros believed that each transaction was a zero-sum game between them and the seller. They ignored competitors, thinking that fools who are over-paying will run out of money, and they’ll still be standing.
Heroes are realistic about the market, Zeros think they can bend it to their will
The Hero household understood that local investors, appraisers, and lenders focus on the most recent and most comparable sales of similar income property. The Zeros thought their opinion about the stock market or the value of single-family homes should matter to the sellers.
The Heroes adjusted their strategy and tactics based on market feedback. The Zeros were indifferent to flat rejection by four different seller groups. They were convinced they were smarter than the other real estate millionaires and all the agents they encountered.
Ultimately, the Heroes focused on capturing the best of the available, imperfect options. The Zeroes kept waiting for the perfect property. They’re still waiting.
Heroes make realistic offers, Zeros make fanciful offers
The Heroes focused on closing. Their offers were fair and absorbed risks within their control. The Zeros wrote offers only a desperate fool would accept.
The Hero household knows that real estate investments involve making wise choices based on incomplete and contradictory data. They paid for professional inspections of the four assets they put into escrow, declined one, and bought the other three. The Zeros wanted something like a money-back guarantee and asked for triple the standard due diligence time.
Heroes make good use of professional advisors, Zeros argued with them
The Heroes appreciated our valuations, began price negotiation, and closed escrows using our reports. The Zeros ignored our value estimates, started with a lower figure on each offer but provided no reasoning to the listing agent.
Heroes work at learning, Zeros think they don’t need to
The Heroes asked questions and read the materials we recommended. They did after action reviews so they know how they will do better the next time.
The Zeros thought it was their broker’s responsibility to correct their ignorance. They would listen to a verbal answer when they had a question but declined to read information that many other investors found helpful.
The bottom line is we’re eager to serve the Heroes for years to come, but we’ll never work with the Zeros again.
~
Based on your experience in buying and selling income property, what else should have been on this list?
-o0o-
Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”
You made me smile 😃