27 Must Know Tips to Minimize Risk and Maximize Returns

As creative real estate investors, there are many strategies that we can implement in our businesses to minimize risk and therefore . . . Maximize Returns!



When I first wrote down the idea for this article, I had a few things in mind and then something happened. I started to realize how many of the things that I do regularly are done for a specific reason. And that reason is to Minimize Risk and Maximize Returns!



These real estate investing tips and strategies were learned due to hundreds of hours study, and years of experience investing full time in the field. 27 "Must Know" Tips to Minimize Risk and Maximize Returns



1. Become a Wholesaler



Some wholesalers close on a property and then immediately turn around and sell it. Others never even close on it in the first place. If your goal is to minimize risk, this is the strategy for you. Find a motivated seller, contract the property, and assign it for a wholesale fee. You can easily make $5K to $10K if you've got a good deal and sometimes much more.



2. Use OPM



If you're not familiar with the term, get used to hearing it. I'm talking about Other People's Money. Doesn't matter whether it's a hard money lender, Bank of America, or your Uncle Bob. Leverage is powerful! Learn how to use it!



3. Build a Guerilla Marketing Plan



A Guerilla marketing plan is a low-to-no cost real estate investing marketing plan. There are a bunch of ways to get motivated sellers on the phone that don't cost an arm and a leg such as bandit signs, farming a neighborhood, knocking on doors of houses in foreclosure, etc. There's a book by Jay Abraham on the subject that's worth looking at.



4. Join a Mastmind Group



Andrew Carnegie taught the power of a Mastermind Group to Napoleon Hill, and Hill penned it in the classic book, Think and Grow Rich. If you haven't read it and care about your financial future, buy the book this week.



As far as a Mastermind Group goes, find like-minded individuals that you can bounce ideas off of. Meet regularly to discuss your experiences, hardships, and successes. This will provide valuable insight into both your business and yourself.



5. Log Your Tenant Communications



When you end up in front of a judge (notice I did not say if), the more organized you are, the better chance you have to come out on top. The judge can pretty much make decisions to suit their personal liking so it's a great way to minimize risk by knowing exactly when, where, and how you ended up in court with this tenant. Some judges are more tenant friendly, some more landlord friendly.



6. Build a Good Contractor Team



I have heard about and personally experienced bad contractors. I've been given estimates for things that didn't need repairing, had a contractor get paid and never be seen again, and had contractors that stole supplies right off the job site. As a matter of fact, I just filed a judgment against a contractor a couple weeks ago who owes me a few thousands of dollars.



OK, I'm done with my rant now. There are also many excellent contractors. You may have to look hard but we've built an excellent team of good quality trustworthy contractors over the years.



7. Order a Title Search



My mentor, Louis Brown, said to always buy title insurance. I am a proponent of doing what experienced successful investors say so this one's coming from Lou.



8. Get Everything in Writing



With your contractors, investors, tenants, partners . . . everyone that you do business with. Write down the terms of your agreement! Determine what will be paid for any products or services rendered prior to them being provided.



You can infinitely improve your chance of building longterm professional relationships by adhering to this often ignored nugget of wisdom.



By foregoing this easy and intelligent tip, you're putting much more at risk than you realize.



9. Learn How to Utilize Options



Options can be used as a great way to tie up property with minimal risk. Since an option is a unilateral agreement, you can choose whether or not to exercise your option and close on the property. The only thing typically at risk is the option consideration that you put down which doesn't have to amount to much. That will be determined by your negotiation skills.



10. Buy it Cheap Enough where you Could Flip it and Come out on Top



Flipping property is the most expensive way to sell real estate. Between purchase costs, the renovation, holding and marketing costs, and the costs associated with selling any property, profit can disappear pretty quickly. And we haven't even talked about the tax consequences!



If you analyze a property and you could flip it and come out on top, that's a safe bet.



11. Hire a Good Accountant



Knowing the bottom line in every deal you do is vitally important. If you are set up properly, an accountant can provide you with a wealth of valuable information so that you know how to maximize the returns from your portfolio.



12. Buy Properties with More Than 1 Bathroom



One bathroom houses have always taken us longer to fill with a tenant than houses with more. If you are looking at buying a 1 bathroom house, look for a way to at least add a half bath. You'll be kicking yourself when your 1 bath house is sitting vacant for months at a time if you don't.



Two or more baths is ideal and makes for a much more marketable house.



13. Utilize Technology



The Internet and technology are changing the way business is done at a faster rate than at any other time in history. Staying current and knowledgeable on the applications of technology to real estate will put you ahead of the old timers that are stuck in their ways.



You will be minimizing your risk of getting left behind by utilizing technology in your business.



14. Get a Professional Opinion of Value



This could be from a real estate agent, an appraiser, or some other knowledgeable real estate pro.



15. Be Able to Survive the Worst Case Scenario



This could correlate to many different scenarios.



For Example: Let's say you find out there's $15K worth of water and structural damage on one of your rentals, the tenant stops paying you rent and you start the eviction process, and it takes you 6 months to get it fixed and rented out again . . .



Could you Survive?



16. Use a Good Closing Attorney or Title Company



A good attorney or title company could save you many thousands of dollars and headaches. If you are looking for someone that is creative real estate friendly, I would suggest asking people in your local real estate investing association. Referrals have always provided much more value to our company than pulling out the phone book.



17. You are NOT the Owner . . . You Work for the Owner



As soon as someone knows that you are the decision maker in relation to a property you own, you have given up a valuable position of leverage. Whether it's with tenants, contractors, or buyers, you're best off if you "have to consult with your partner" or "have to run it by the owners."



18. Have Sellers/Tenants Sign a Lead Based Paint Disclosure



I've never had any problems in any of our properties with lead based paint but many people have. This is a standard form used for most real estate transactions.



19. Learn How to Evaluate Property on Your Own



Knowing how to evaluate a property on your own gives you an advantage. You do not have to rely on someone else's opinion, and you're not on their time. By doing your own evaluations, you will be able to know quickly if you've got a deal on your hands. And time is of the essence when working with motivated sellers.



20. Don’t Quit Your Day Job . . . Yet



Relying on monetizing your real estate deals for your sole source of income can be quite challenging. If you have a good income and your doing deals to make extra money and build wealth, you will be in a great position to do so.



21. Learn Creative Deal Structuring Strategies



Creative deal structuring spans from doing subject to deals, to structuring owner financing notes payable over time, to using the little know concept of substitution of collateral, to bringing in private investors to fund your deals, and the list could go on and on. You can be as creative as you want in the contracting, financing, renovating, and selling phases.



Ask yourself continually, "What's another way that we could structure this deal?"



22. Have Multiple Exit Strategies



DO NOT enter a deal if you only have one way out of it! Why do you think so many of the speculators that bought preconstruction deals when the market peaked are losing their investments to foreclosure. They banked on one thing and one thing only . . . Appreciation! So the market fell out and so did they.



23. Do What Experienced Investors Tell You to Do



Maybe it's built into human nature to not want to listen to people and to forge our own path and make our own decisions. Well, if you're just getting started, fight this tendency!



It is much cheaper to learn from the mistakes of others rather from the school of hard knocks! Do exactly what successful investors tell you to do.



24. Define Your Niche



This will skyrocket your chances of success as a creative real estate investor. You will make it much harder when starting out by buying a couple properties in the hood, a few nice houses in nice neighborhoods, multi-family property, a beach front condo, and a mobile home park. You get my drift anyway.



My company's niche is single family homes in nice areas, in good condition, with an ARV between $150K-$175K. Depending on where you are located in the country that price range may sound like a war zone to you, but it all depends where you live. Here in Charleston, South Carolina, there are many areas within a 30 minute drive that fit into our niche.



25. Write Small Earnest Money Checks



Between $10 and $100 is customary for our company. Most real estate professionals (agents) typically do 1% of the purchase price. But we're creative real estate investors so we do things a little different.



26. Use Sandwich Least Options



I first learned about this concept through Peter Conti and David Finkel's book, Making Big Money in Real Estate without Tenants, Banks, or Rehab Projects.



This has never been my style since you don't get the deed but there seems to be people doing it successfully. And this technique definitely limits risk.



27. Bring in a Financial Partner



My first year investing we found an excellent financial partner. An additional bonus was that he had been doing renovations himself for years. He would put up a loan for 80% of the ARV, and we partnered with him on the deal. He not only financed the deal for us but also managed the renovation. It was an excellent set up for us as beginning real estate investors, and it was also a great way for him to leverage his way into more deals. A true Win-Win relationship.





Patrick Riddle has done over 100 deals since he started investing just over 5 years ago. He is considered an expert in creative real estate investing techniques, lease options, short sales, and recruiting private money. He has risen over $5,000,000 in cash from private investors for his company.



Being a teacher at heart, he enjoys writing for his blog, Must Know Investing : The “Best Darn” Creative real estate investing Blog on the Planet