The Tale of Two Real Estate Investors

Today we are going to share the tale of two real estate investors. Real estate investing can be incredibly rewarding. But as with any venture, preparation is key. Let’s dive into the story of two investors and uncover why one succeeded while the other struggled. Their journeys highlight the importance of being money ready.

Investor 1: The Prepared Pro

Investor 1 started with a clear plan and a solid understanding of the process. They knew they needed to budget not just for the obvious costs but also for unexpected surprises. Here’s what they did right:

Setting the Budget

• ARV (After Repair Value): $400,000
• Expected Profit: 15% or $60,000
• Total Budget: Included 6 months of carry costs, repairs, and selling costs.

Smart Planning

Investor 1 allocated 20-40% of their total project budget as accessible funds. This included:

• Down payments
• Carry costs like taxes, insurance, and HOA fees
• Staging expenses
• Unexpected repairs

For example, when they opened a wall and found outdated wiring and copper plumbing, they had $7,500 available to cover the costs. This allowed them to keep the project on schedule and avoid costly delays.

Staying on Track

Thanks to their preparation, Investor 1 completed the project in 5 months instead of the planned 6. They saved on carrying costs and walked away with a profit of $55,000. They were ready to move on to their next deal, stress-free and confident.

Investor 2: The Unprepared Dreamer

Investor 2 had the same goal: a $60,000 profit on a $400,000 ARV property. But they underestimated the importance of being money ready. Let’s see where things went wrong:

Overlooked Expenses

Investor 2 didn’t budget for:

• Unexpected repairs
• Additional months of carrying costs
• Extension fees for their loan

When they faced the same $7,500 unexpected repair as Investor 1, they didn’t have funds available. Instead, they had to:

• Seek gap funding from lenders, costing an extra $2,000.
• Delay the project by weeks, leading to higher costs for labor and rescheduling contractors.

Delays and Costs Add Up

The delays pushed their timeline from 6 months to 10 months. This meant:

• 4 extra months of taxes, insurance, and interest at $3,000 per month ($12,000 total).
• A 5% price drop on their property to sell in a slow market, losing $20,000.
• A loan extension fee of $5,000.

The Outcome

Instead of $60,000, Investor 2 ended up with a profit of just $15,000—and a lot of stress. While Investor 1 moved on to their next deal, Investor 2 was left wondering where things went wrong.

The Big Lesson: Be Money Ready

The difference between these two investors comes down to preparation. Here’s what you can learn:

• Budget for the unexpected. Set aside 20-40% of your project’s total budget in accessible funds.
• Keep your project on schedule. Avoid delays by having funds ready to handle surprises.
• Plan for speed. The faster you complete a project, the less you spend on carrying costs and the more you profit.

Get Help Before You Start

Don’t let unexpected costs derail your investment dreams. With the right planning and support, you can not only avoid costly mistakes, but you can maximize your profits as well. If you need help setting up your money buckets or finding the best loan options, reach out. We’re here to help you succeed in real estate investing. Contact us today to find out more!

Watch our most recent video about: the tale of two real estate investors