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The successful investors do deals with low risk. Deals that are so robust that even if almost everything went wrong they'd still come out with a profit.
BUILD IN A SAFETY MARGIN
For example, suppose you have a rental with a positive cashflow. Is your cashflow high enough or your option payment big enough, that even if you had to evict your tenant for non-payment and it took you 2 months to fill it with another cash-paying customer, you'd still come out ahead?
Or, is your investment to value so low that even if you had to offer your buyer a big discount for a quick sale, you'd still walk away from closing table with a fat check?
In real estate things can and usually do go wrong. It's Normal. So, wouldn't you like all your deals to have these kinds of safety margins?
FIXING THE PROBLEMS WITH YOUR DEAL
Now, if you knew in advance that your risk was too high, or your cashflow was too low, or your profit over life of deal wasn't enough, you'd want to think of solutions.
This is what is meant by being a "transaction engineer". Find solution, fix problem, test it on numbers, and then negotiate it into deal.
And if you can't find a solution (but there always is one) or seller won't accept it—NEXT!
A RISKY DEAL IS NEVER WORTH DOING!
I can tell you from real experience, a bad or risky deal is NEVER WORTH DOING—no matter how enticing vision. The personal stress, heartache, and loss of confidence can be even more harmless than potential financial loss. In words of an ex-president's wife, if you are faced with doing a bad deal—Just say No!
WHAT'S THE ANSWER?
Some experienced investors have a feel for good deals, and can avoid trouble most of time. Others only do a particular type of deal and use a rough "rule of thumb" to evaluate their risk and profit.
However, what's really needed is a "calculator" or computer program that will take in all variables and
> Calculate exact profit and cashflow for all kinds of deals. > Measure and Evaluate financial risk in deal > Use standard and safe criteria for what constitutes a good deal > Suggests alternatives to fix what is wrong
A DEAL EVALUATION TOOL
We've taken tons of real estate courses and looked at all kinds of real estate software, and nothing has come close to what we as investors need. So we decided to create our own Deal Evaluation Tool.
Well after several months of testing and improvement, we now use it for all our deals—short sales, subject to, lease option, rehab, wholesaling, and even some commercial.
Since we can try out different "what-if" scenarios, it's kept us away from some real pitfalls, and helped us negotiate better profit margins. We wouldn't "leave home without it".
CONSTANTLY MEETING THE NEEDS OF INVESTORS
Well, some other investors wanted to try it, so we put it on our website. Much to our delight we now have a community of users and a users group that shares their insights about doing deals and creative ways to use Deal Evaluation Tool.
Their suggestions, are leading to a rapid improvement of already incredibly useful tool. There is just nothing out there like it. We've also put a demo up for those investors who would like to get a feel for using it. And we hold classes for new users.
Knowing all numbers, and having evaluated our risks with Deal Evaluation Tool gives us more confidence in negotiating deals with sellers and more consistent high profit real estate deals.
And that's what we all want, isn't it.
Best of Success,
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