Preface

When I began real estate investing, I looked for a book of check lists like this one. But I couldn't find one. So I made mistakes. In my work as a real estate salesman and as a member of real estate investment clubs, I also watched other people make mistakes. Then, I made lists of those mistakes to make sure I wouldn't make them again. From those mistake lists I made check lists, and from the check lists came this book.

If you are considering buying a home or investing in a rental house or apartment building, this book could save you a great deal of time, money, effort, and emotional strain. Use this book to prepare for your inspections and negotiations. Carry it with you when you inspect the property. Use it as a guide when you are reconstructing an income and expense statement, drafting a contract, etc.

If you only read this book and add it to your investment library, you have missed its main point. You can't learn what is in this book any more than an airline pilot can learn his preflight check list. In the acquisition of a house or apartment building, accuracy and thoroughness are essential, and it is too easy for even a veteran investor—or pilot—to forget one of the many important steps. Real estate investing does not have the life or death aspects of flying a plane, but the stakes are still high. And those high stakes demand the high standards of accuracy and thoroughness that are attainable only through the use of written check lists.

Keep in mind that there are two memory problems in buying residential property: You must remember both what to look at and what you saw when you looked. This book will tell you what to look at. But you'll need a pencil and paper and camera to remember what you saw. So take the book and TAKE NOTES and TAKE PICTURES.

A caveat

Buying real estate, like politics, is the art of the possible. A successful investor is one who achieves a worthwhile return on his investment. Care and thoroughness in property selection are important to investment success, but they are not ends in themselves. Too often, people are convinced by textbooks and case histories that they should invest in real estatebut they are paralyzed when the time comes to actually sign on the dotted line. Used improperly, this book might contribute to that sort of "analysis paralysis."

If you decide you shouldn't buy a property unless it meets all the "tests" in this book, you'll never invest. The perfect property doesn't exist. Indeed, properties with problems usually offer more opportunity for profit. This book's purpose is to help you assess problems accurately, not avoid them entirely.

Some readers may think that the scope of this book is a model for the thoroughness of each acquisition evaluation you make. That would be ideal, but an investment never takes place in a vacuum. There will nearly always be other potential investors looking at a property at the same time you are. If they consistently reach agreements with the owner while you are still on page 8, you'll never be an investor.

You have to keep one eye on the check lists and the other on the deal. It's a fact of life that we rarely have "enough" information when a decision has to be made. To be a successful investor, you must make timely offers. And your price must be high enough to be acceptable to the seller.

One good way to make sure you not only analyze properties but also take action is to set a deadline for buying a property. Six months is probably sufficient time to find a suitable investment. If you've been looking longer than that and haven't found an "acceptable" property, you're probably:

1. Being too fussy,
2. Taking too long to evaluate each property, or
3. Making unrealistic offers.

Establish a standard for the amount of time you take between when you learn a property is available and when you make a decision about bidding on it. This should be short, maybe two business days.

Try to complete as many of the check lists as possible during that period. If you are certain that you don't have enough information by the end of that time, advise the owner of your continued interest and give him the date you expect to make a decision. If he insists on an earlier decision, either because he has another offer or because he wants to give you the bum's rush, say goodbye and look at other properties. But keep the six-month rule in mind. If you continually turn down investment opportunities because of too little time, you're probably too slow.

One way to make a speedier evaluation is to recruit a team from members of your family, friends, or fellow investors. Assign each team member a different part of the check lists, a different room of the house or apartment to inspect, or different places to call for expense verification.

If your team is properly prepared and led, you can complete virtually all of the check lists within two days. Of course, completion of every item on every check list is not necessary. The main dangers are toxic contamination, bad location, and a structure which cannot be economically repaired in view of the price, terms, and cash available. Most other problems are cheaply correctable. If you feel pressed to make a decision on a property and you're convinced the location is good and the property is clean and the structure is sound, you should probably go ahead even though you are uncertain about other less important items.

In his book Games People Play, Eric Berne described one adult behavior pattern that he called "Now I've Got You, You Son of a Bitch." This refers to the enjoyment we derive from catching someone in an act of dishonesty. Selling a large building is a situation in which people are tempted to conceal or minimize problems and exaggerate net income.

This book provides you with the tools to uncover most deceptions and exaggerations and to confront the seller with evidence of his dishonesty. Restrain yourself. It is important to retain the seller's goodwill throughout the negotiations. In some cases, subtle references to apparent discrepancies can play on a seller's guilt feelings and may help you gain a negotiating advantage. But be careful not to overdo it.

This book is not intended to be a complete text on houses or apartments. It is simply a book of check lists and, as such, contains only those things which are "check-listable." To be successful in real estate investing, you need a broader education than this book provides. If your are buying a rental property, you should also join the local apartment owners association before you begin your search in an area. If there is no local association, start one.