5 Questions to Consider Before Investing in Distressed Real Estate

I believe distressed investing is the best way for people to get into real estate.

Distressed real estate allows you the most room for error. In my experience, this has helped me build back my life and create a better foundation moving forward.

When I talk about “distressed” real estate, I’m referring to the developer’s distress. As the investor, you are picking up an opportunity cost where the previous owner couldn’t finish what they started. This could happen to any of us. The reality is there are so many uncertainties and it’s foolish to think any of us have a crystal ball that can predict the future. Instead, we need to make informed decisions and understand how micro and macro events can impact real estate.

For example, we’re still experiencing the effects of the pandemic right now. That’s a macro event that is causing widespread distress and a potential disconnect from the intrinsic value of certain properties. But there are also micro events such as unfortunate life situations, like a divorce or a medical condition. Distress is happening all the time. So how do we find these opportunities and structure a deal?

Here are 5 key things to consider before investing in distressed real estate.

  1. What is my dream?
    This looks different for everyone. It’s important to know what you want. Do you want to make 3 million dollars by the time you are 35? Understand exactly what you are aiming for with your investment.
  2. Why is this your dream?
    Do you want an arbitrary number like 3 million dollars because you want to be able to live abroad for half of the year? Are you saving for something specific? Be clear about your why. There may be a much more accessible way to achieve your goals.
  3. How much do you need?
    Put an actual value on what you need. In order to achieve your goal, how much money do you need to make this year? How much of that needs to come from one particular deal? This will clarify for you the types of deals you will need to pursue.
  4. What aligns with you as a person?
    Now that you understand how much you need to make and why, consider the projects you are currently working on. Figure out which projects and tasks align with who you are as a person. Once you clarify these elements, you are empowered to be passionate about them! As you pour into these projects, you’re eliminating everything else, so you’ll want all your effort to be aligned with your core values.
  5. How can you incorporate others into your systems?
    You have taken a fearless inventory of what you want, why you want it, how you’re going to get it, and you understand the role you are willing to take to accomplish it. Who do you need to come alongside you? You do not have to do it all. That’s a big misconception. You do not have to be the smartest person or do the most things. Real estate investing is a team sport. Start building your team today.

I’ve made a lot of mistakes. I’m still making mistakes, but over time they are less likely to be fatal. If you want to learn more of my own pitfalls so you can avoid them yourself, check out my conversation on the ‘Construct Your Life’ podcast with Austin Linny. Together we can keep each other from the big mistakes and move forward successfully!

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