Protect Your Investment

Investing in Real Estate is not easy. Finding deals, building relationships, analyzing deals, finding money for deals, etc. All hard things to do, so when you find a deal that checks your boxes and you come to an agreement with the seller, the initial reaction is to do whatever you can to close the deal. Sometimes that’s not possible.

The property you found might be the coolest building, with a bunch of amenities in the perfect location, but sometimes the best decision may be to walk away. It might be hard, but the most important thing in Real Estate is to protect your money. When you’re using other people’s money, it becomes even more important to protect THEIR money. Take the deal I referenced in Kansas City for instance. 

We spent months building relationships in Kansas City, studying the market, analyzing every deal we saw, raising money, and so much more. We were as excited as we could possibly be when we found a deal that checked just about every one of our boxes and we agreed on a price with the seller. The easy route would’ve been to do whatever it took to close on the deal, even if that meant buying a bad deal. It’s a lot like buying a puppy. You fall in love at first sight and take it home for a couple of days. Everything seems great, but you didn’t do your research. Because if you had, you would've known that this breed needs way more attention than you can give it, is much more destructive than you could have imagined and barks non stop. 

Making sure you protect your investment is the single most important task you have as a real estate investor and we at Duer Urakami Group do NOT take it lightly. We’re asking our friends, family, and friends of friends to trust us with their hard earned cash to grow their wealth. 

What kind of company would we be if we did not make this priority #1?? 

One way to protect your investment is knowing the neighborhood you’re buying in. As the saying goes “Location location, location.” In the Kansas City deal, we found that while the property sat right next to a quiet, safe, well kept neighborhood, the particular corner that this property was on had a liquor store right next door. This has now become an automatic pass for us because liquor stores (Among other types of stores) bring a crowd of people you don’t want around your tenants and can also attract tenants you don’t want.

Another way to protect your investment is to make sure the deferred maintenance is not extreme, and if it is, the seller needs to pay for most of it or sell at a huge discount in order for the deal to work. Some things to keep an eye out for are the age and condition of the roof, HVAC systems, water heaters, plumbing, and electrical. Also, while visiting the property, look for water damage, exterior decay and visible hazards. When in contract these items are #1 on the list of importance. As soon as we signed the contract on the property in Kansas City, we had a roof inspector come to the property. Immediately, they let us know that the roof needed a complete replacement. Had we not had the inspector come to the property, we may have overlooked the extent of the damage on the roof. Nobody is expecting properties to be in perfect condition, but with issues like roof replacements, it can open a huge can of worms if you’re not careful. 

One more way to protect your investment that can make or break a deal is insurance. If insurance companies won't insure your property or they offer extremely high premiums, you’ll need to find out why. There could be several reasons and not all of them mean you need to walk away from the deal. If you’re aware of high insurance costs, you’ll need to account for that in your purchase price. All insurance companies want to protect their assets, just as much as you do and if there’s a property that poses physical risk, and what I mean by that is structural issues, major roof issues, water damage etc. they'll either decline to offer you a policy, or offer a policy with conditions. At the KC property, they asked when we would replace the roof and how much it would cost and which company was replacing the roof. They ask these in depth questions to make sure you are going to mitigate the risk as soon as possible. If they aren’t confident that you can do that, they won't offer to insure the property. Making sure your property is insurable, does not have extremely high premiums, and last but certainly not least, making sure you have enough coverage helps you protect your asset from the inside and out.

Deciding when to move forward on a property and when to walk away can be a difficult decision, but how we have gauged this decision is by assessing the risk up front, offering a price we’d be willing to pay that gives us a buffer against these risks, and not wavering on that price. Additionally, when we find ourselves in these situations, we like to offer two different solutions to the seller. One, a lower price with the understanding that the property is not in the best shape and quite a bit of work is needed, or two, a higher price with large credits from the seller at closing decreasing the amount of capital we would need for the deal and lowering our risk. Even then, if we do not feel comfortable, we have no problem walking away because after all, the most important part of our business is protecting our investors' investment.