Buying Your First Investment Property? Here Are 3 Reasons to Turn Down a Real Deal | Tim Hubbard

Today we're going to talk about three reasons why you should say no to a deal. And this is going to be in regards to a deal that's already in the market you want to be in and that makes sense and fits your budget. So three reasons and questions to ask yourself that might lead your answer to no to make you pass on the deal. Let's jump right in. Welcome to Short Term Rental Riches where we'll discuss investing in real estate, but with a specific focus on short term rentals to help you build wealth faster with as little headache as possible.

So I know what it's like when a great deal comes along, the perfect deal, it looks awesome. It seems like the numbers make sense. It's in the right market, it's got so much potential and you get a little emotionally attached. I know, I've been there, I've been there lots of times. But sometimes we've just got to say no. And there are some certain things we've got to ask ourselves and those often lead to no. No, no, no does not make sense and we've got to pass on it. So I want to talk about three different things this week. Three different reasons why you would say no. Then I want real quickly about two deals that I've passed on recently myself. One in the US and one down here in Medellin, Colombia. So let's jump into number one. And I know I talk about this a lot, but it is the most important. So we're assuming you're already in a market that makes sense. The market has good fundamentals, population growth, strong employment, all of those things. And this property, this potential property, media, your budget.

But that doesn't mean that it makes sense as an investment. And the numbers are gonna tell you that. So we have to run the numbers. We have to. We have to. At the end of the day, it all comes down to numbers. Numbers tell us what to do. So what numbers we're talking about, we're talking about the rents or the potential rents. And again, I always like to, to run my properties on a long term basis first before I consider converting them to a short term rental. So that's what I'm talking about here. So does your mortgage and your insurance and your property tax and your management and potential utilities. Do all those expenses on a long term basis equal less than your potential rent. Now if the units vacant, well then you're going to have to look up rent comps in the area and be conservative. So if you're looking at larger deals over four units, you might Have a nice fancy, fluffy looking pro forma in front of you. That's what commercial brokers use to sell commercial properties or apartments over four units. And we've got a whole episode on that. Jump back and take a look. But essentially, if pro forma can be a bunch of bull, it's just a bunch of fluff. It's not the actual numbers. So we need to do our due diligence. And that is step one. Now, the smaller deals aren't going to have the pro formas, but there's plenty of data to run. Now the second step as a short term rental investor, that's to run our potentials on the short term rental side. And you can do that with airdna Co. They've got a lot of great data. Also by looking on OTAs like Airbnb and VRBO in your neighborhood, see what they're running for. So that's number one. That's the numbers. I don't want to continue to the labor of that point because I talk about that a lot, but that is the most important. So there's two other things that we really want to consider here. Maybe you found this potential property. It's in an awesome market that has great fundamentals. The numbers seem to make sense, it fits your budget, but you don't have the time to do it. That is a real consideration that you need to make. And you could find a fantastic deal that has a ton of potential, but you don't have the time to put it together, to manage it, to renovate it. Or that's the other side of this second point is the work that it needs. Maybe it needs a lot of renovation. Are you experienced with renovations? Do you know how much to budget for that? Those are things, of course, we can always learn, but they could be the reason why we say no to a project. Especially if you're investing remote in a new market and you don't know anyone and you're looking to do a renovation that could be a little trickier. That could be a little trickier. It's hard to find good contractors these days, especially if you're in a market that you don't know. So be realistic about the time involved for this deal. And again, if we're looking at it as a short term rental, do you have the time involved to transition this long term rental, if it has long term tenants in it, to a short term rental? Do you have that time to furnish it and do all that? Or do you have the time just to simply find the people to help you with the property, of course you're going to need a little more money if you're not doing a lot of it yourself. So that is the number two reason is time and work involved and the third reason is sort of a broad one. It's basically unknowns. There are things that.

Are hard to know in the beginning. Now our due diligence helps answer most of those questions. So our physical due diligence, property inspections, plumbing inspections, whatever inspections you need, if there's any issue on the property and it seems like it could be a big cost down the road, then you want to have it inspected. So we can figure out a lot of unknowns, but, but when it comes to the short term rental world, there's a few others that may still be unknown. What if there's no short term rental regulations in that city yet? Is it a conservative city? Is it a more liberal left sided city? Well, you've got to consider that, that that's possible. If there's no restrictions or rules in place, it doesn't mean that there can't be in the near future. So we like to invest in places that already have those rules established so we know that they're available. So that is an unknown if there are no regulations in place yet. Now if you're trying to start a short term rental on a vacation or remote area and there's no other data to go off of, there's no other short term rental comps, well that can be another unknown too, and that could make it a little riskier. So most places now you can find pretty good data with air DNA or just by going on Airbnb. And as we know, Airbnbs are all over the world. They're everywhere. In the few spots that they're not, well, they're coming soon, so. But that is an unknown. So consider that. So those are the three things. The number one is basically numbers. Numbers tell us what to do. But number two, do we have the time to do all the work? And number three, are there some unknowns that make this deal a little too scary to do? So those are the three. Now just to kind of sum those up and two deals that I turned down recently and one was in the US is actually not a property that was going to purchase. Someone came to me with a lease arbitrage deal. If you guys been listening to the podcast for a while, you know that almost all my properties I own, but I did sign a lease for 10 units and it's working out really, really well. It's crushing. It actually it's making a ton of money. And someone came along and said, hey, I heard you were doing this other deal. Do you want to rent my 16 apartments in a really nice area of town, Brand new construction for the long term. And so I went through negotiations. This was also happened to be with a commercial broker that I really want to work with. He's like the ultimate multifamily broker in this city. And I met him before, so that was really nice. And he was easy to negotiate with, but in the end it didn't work out. So he had a price that he wanted to rent them for. I had a price that I thought was the max amount that I could pay. Now, a few things about this deal. There were 16 units. It's in a slightly different neighborhood in this city that I haven't rented before. And because the price that he wanted for it was so much higher than the price I was willing to pay, coupled with the uncertainty of how many guests I was gonna get in there, I had to say no, unfortunately. And there was a lot of great things about. It was brand new construction, he did a great job on it. Looked nice, walking distance to amazing restaurants. I mean, I was getting attached to this thing. It was a great opportunity. It just didn't make sense in the end. The numbers didn't make sense. And there was also a time involved there. You know, I would have coordinated all that remotely from Columbia, where I am right now, but it just didn't work. Just slightly too risky. And we had even talked about outs, you know, like if it didn't work out that I could get out of the lease without any risk. But I wasn't willing to invest the, you know, for these 16 units, maybe 70 $500,000 in furniture. Of course, I don't want to invest that. And then three months later find out that it just didn't make sense. And I had the three months in time in there. Another one. I'm down here in Colombia and I'm really excited about the opportunity to do my first development. And so I've been researching the market. I'm going to be partnering with a good friend of mine that's just finishing his development. So. So fantastic. Fantastic lot for sale in the best part of the whole city. I've. I've been spending a lot of time down here years, you know, and I'm a real estate guy, so I've done a lot of research. Fantastic location. But this was a risky deal. This was to build a big, big development, like, you know, 15 stories plus, would be demoing two properties that were already in the area. And there was a lot of upfront money for this. So we, we made a, a great offer based on the amount of value that we'd be able to get out of the property. And that really comes down to how many meters we'd be able to build. And going back and forth with the owners, we weren't able to work that out. Unfortunately, the, our bottom price was just too low for them. But there was a couple other things that turned me off to this deal. One was the architect that was working on the plans. He already had the plans together. He just didn't seem like a really easy guy to work with. So that's important to consider, especially if you're looking at doing a longer project. If you're looking at partnering with someone for several years, this is probably a minimum 2, 3 project, whatever, whichever one ends up happening. So if you're starting off on the wrong foot, well, you got to be careful there. So there was that and then there was the upfront cost. It was going to take about nine months to get this license to know how much we could build. And that whole time we would be paying the sellers like a monthly amount. And if it didn't work out in the end, we would lose all that. And we're talking quite a bit of, quite a bit of money here. And time again, so multiple reasons there why I had to pass on the deal. The plans, by the way, are to put a lot of short term rentals in whatever we end up doing. So if that's exciting, I'll keep you guys updated on that. So just keep these things in mind. More deals are going to come up. Don't get emotionally attached. I know it's hard to do, but that's when our judgment starts to let us down a little bit. And we don't want to get into a deal that doesn't make sense because it could take quite a long time to get out of it. So hopefully those few tips helped you guys out. Hopefully you're doing really well out there, wherever you are in the world. And I really appreciate you listening. And I can't believe we're coming up on our hundredth episode. Oh my gosh, two years. A lot's happened in two years. So until next time, I hope you have a wonderful day.