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Deal Analysis: Profit Lessons from a Traffic Light

Deal Analysis: Profit Lessons from a Traffic Light

Deal Analysis Can Protect Profits

The biggest mistake I see novice investors make in Portland is that they do not do proper deal analysis, including profit planning and exit strategy assessment. That’s jargon for saying they take deals where there’s not enough money, or there’s no safety net in case their one way of getting out of the property goes sideways.

In my free video “Seven Biggest Mistakes in Portland Real Estate Investing” I go over a number of the different exit strategies.  I’m not going to add substantially to that now, but here is a quick list of property and exit strategies:

  • Property Strategies
    • Do nothing (sell “as is”)
    • Quick cosmetic improvements (“rehab”)
    • Major cosmetic and material improvements (“remodel”)
    • Reconfigure for additional bedrooms, bathrooms, or units to increase sale value or NOI (“net operating income”)
    • Raze improvements to the ground
    • Raze and rebuild on existing foundation (still considered in most jurisdictions to be a remodel)
    • Raze and rebuild entirely new
    • Subdivide lot into two or more legal lots
  • Exit Strategies (for land or land/improvements combination)
    • Sell retail through realtor
    • Sell retail FSBO (“For sale by owner”)
    • Sell wholetail (discount from retail value)
    • Sell wholesale (deep discount to allow for rehab or remodel costs and resale)
    • Sell on contract
    • Lease option (“Rent to own”)
    • Rent/lease

You can mix and match property and exit strategies to come up with an almost endless variety of ways to get out of a deal profitably. We consider dozens of scenarios in our weekly webinars.

What we’ll focus on here and now is a simple way to make sure you’re paying attention to effective deal analysis. It’s called the traffic light strategy.

I did not invent this, but I have used a version of it in my own investing for years. It’s a pretty simple system and it works just like a traffic light:

GREEN – You have at least THREE exit strategies that will all pay you your minimum five-figure paycheck. (By the way, YOUR minimum five-figure paycheck could be anywhere from $10,000 to $99,000. I personally recommend that my students and partners NOT use $10K as their figure.) GO! GO! GO!

YELLOW – You have TWO exit strategies that will pay your minimum paycheck. Proceed with caution.

RED – You have ONE exit strategy that will pay your minimum paycheck. DO NOT PROCEED.

If you keep this simple formula in mind, it will be very difficult for you to lose money on a deal. If you combine this with the other strategies you’ll learn on this site, in your emails, and in our membership club, you’ll be practically bulletproof. Won’t that be nice for a good night’s sleep? Do your proper deal analysis, make sure you’ve got multiple exit strategies take action, and prosper.

Deal Analysis: Profit Lessons from a Traffic Light