New Funding Resources 
As I write this article, the Washington, DC, real estate market continues its solid footing. Prices are either stable or increasing—always a good sign for existing homeowners and real estate investors alike. But solid footing does not mean devoid of challenges, nor should it. In fact, challenges abound. If you are a first-time buyer trying to purchase a new home, you probably need to depend on your family’s financial help to afford it. If you are a seasoned homeowner trying to downgrade to a smaller place, higher rates on new mortgages make potential savings marginal at best. And if you are a real estate investor, the competition is tough, and you get outbid regularly. Do we need to order cheese with this whine, or can we rise to these challenges to learn and make money? Let’s have a reality check.
Challenges persist. But how we view them changes.
I’ve been in the mortgage business for almost thirty years. I’ve been a private lender since 2006. It seems that every year is more challenging than the other. Yet, we keep making money. Our borrowers keep making money. A new generation of investors gets into the business and starts making money. The old ways of getting properties become widely known and, as a result, stop yielding the profits they used to in the past. Yet, savvy real estate investors discover new ways of securing profitable deals. Old marketing strategies no longer work. Yet, agile companies develop new marketing approaches. The challenges create new opportunities for those who recognize them.
Henry Ford famously said, “Whether you think you can or you think you can’t, you’re right.” For each old investor who gets out of business because it’s too tough, we see a new investor come out of nowhere and start making money. It’s not easy for newbies, but many succeed. I imagine them growing old and regaling their grandkids with the stories of their successes and struggles. “Things were simpler then,” many would say. “It was easier to make money in the past.” Perhaps they would be right. But what you need to remember is that their past is your present now.
There were years when making money in real estate was easier. In retrospect. As real estate investors, we might fondly remember the years following the real estate market collapse of 2008-2010 because of the abundance of cheap properties. What we tend to forget is that we didn’t know then what the future would hold. We could not predict if the market would rebound and, if it did, when. Some rushed in too early and, as a result, saw the equity in their property deteriorate when the real estate market continued its downfall. Others were traumatized by their losses and swore off real estate for years to come. Those with some luck, financial resources, and nerves of steel rode the wave. It seems easy now, but trust me, it was nothing but.
So don’t let challenges stand between you and your goal. Work with them. Embrace them. Learn from them. Find a way to overcome them – by being extra creative, by working extra hard, by hustling more. Now. Today. Because the next year will be more challenging. Guaranteed.
Stand by the old real estate principles.
We’ve talked about how new challenges require new approaches to solving them. But one main fundamental truth about real estate has withheld the test of time: You make money when you buy. What it means is that you need to buy at a discount that is significant enough to generate profit in today’s market. You cannot count on future appreciation. You cannot hope to slash costs by minimizing renovations. You need to negotiate this price down when it can comfortably make you a profit – without relying on any Hail Mary passes.
To do so, remove emotions from your purchase decision. Face and deal with any red flags that might accompany your potential real estate investment. Please don’t take your real estate agent’s assessment of the transaction profitability at its face value. Learn how to run your own comps and come up with your own after-repair property value. Use a hard money loan calculator to confirm that the profit you will be making is worth your while. Above all, be prepared to walk away from a deal if it doesn’t meet your profit expectations or exceeds your risk tolerance.
Watch your renovation process like a hawk.
Once you put an investment property under contract at a sufficiently discounted price, a major way to mess it all up is to fail in your renovation process. Not diligently investigating the property’s condition prior to purchasing, working with an unreliable contractor, or not managing your contractor well will unavoidably result in delays and, worse yet, running out of the budget before completing the project.
Once you settle on your purchase, it’s all decks on hand. Make sure that your contractor is ready to go and that you have enough financial reserves to purchase the required materials. Avoid advancing significant sums of money to your contractor. Keep them motivated to make progress fast. Remember that each month your private hard money loan is outstanding, you are paying interest to the lender and reducing your profits. You are also paying real estate taxes, property insurance, and HOA fees. So be available. Be present and check on the progress and quality of work often. Because both the speed and quality of your renovation matter tremendously for your bottom line. This brings me to another point…
Develop an understanding and appreciation of modern design trends.
DMV real estate is expensive. The median after-repair value of the properties we finance is between $500K and $600K. Many sell close to or above a million dollars. Investing at this level requires money, experience, and grit. But it also requires something else: an understanding of current design preferences for the luxury real estate market.
If you are a real estate investor in the Washington, DC, area, it’s simply not enough to clean up the property, install stainless steel appliances, and install kitchen and bathroom cabinets just a notch above builder’s grade. You need to wow your potential buyer with design elements that are simultaneously classic and on-trend.
You cannot do that without becoming a student of contemporary residential design. I am not talking about getting a formal degree and a certification. I am talking about spending time on social media—Pinterest and Instagram—and visiting model homes to see what the expectations are for high-end properties. Do not count on your contractor to offer you ideas. You need to be at the helm of your renovation process, and the overall design is your responsibility.
Price your property right for a quick sale.
Of course, you want to sell for the highest price possible. I get it. But if you decide to put your property on the market for a price substantially higher than its original ARV, think twice. There might be reasons to increase it. If you held the property for more than a year, and the market has moved up, the increase might justify itself. Another reason to up the price is if you expand the scope and the breadth of your renovation process. We’ve recently had our very experienced borrower price and sell his property for almost $200K over the initial after-repair appraisal. However, after seeing the final pictures of the rehab and its spender, I suspect that he had spent almost twice his original budget on renovating it. Good for him, since he made more in profit this way.
Otherwise, overpricing your property is a recipe for delays and price reductions in the future. When it comes to MLS listing, the longer your property sits on the market and the more incremental price reductions it receives, the less chance it will sell for its true market value. The buyers and their agents are like vultures: they sense weakness and want to use it to their advantage. If you need to cut the price, do it quickly and decisively. Better yet, don’t be greedy. The best practice is to price your property right and sell it quickly to a strong buyer.
New Funding Resources is a private hard money lender that helps real estate investors in the DMV area build wealth in real estate. Our mission is to help you make money in an ethical, sustainable way that benefits all parties involved, including the communities these homes are in.
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