What are the risks in real estate investing?

Randy Butler Contributing columnist

Randy Butler Contributing columnist

Are you a risk taker? I am the kind of guy who always takes the risk, then wonders if it was a good idea.

In reality, I really have never taken more than 30 minutes to decide anything in my life. That doesn’t mean that I have always made good choices. Good or bad, it just doesn’t take long for me to make them.

Many years ago, Sherriff Donnie Barrera and I decided to go into the fox calling business. He had a cassette tape (that’s how long ago it was) that had a rabbit squealing like it was hurt. The idea was when the fox heard it, he would come running toward the sound. The goal being we would shoot the fox, along with many others, and we anticipated making a small fortune. This was also done at night with very special lighting — a bread wrapper covering our light to make it look red. I can’t remember why we needed a red light.

When our hunting debut night came, much to our surprise, it worked. The fox came right to us. The golden moment was right before us, but we both choked. We froze and did nothing. The fox was there one minute and gone the next. The two great hunters returned empty-handed.

Just like fox hunting, any real estate investor will tell you that you must strike while the iron is hot. The deal in front of you may not be there very long.

Over the years I have gotten to know Wesley Fender very well. He has been investing in real estate since I was in school. Was there a sure-fire formula he used? It seems like he can pick a winner every time.

Wes has always been a risk-taker. Now, I am not sure of the thought process he uses. Does he calculate all the costs he may incur? Maybe he has long spreadsheets and Word documents with every penny spent. Now, Wes doesn’t own a computer or an iPhone. Knowing him I am sure it can’t be all that complex. Or does he just say, this one just may turn a profit? It’s a mystery what formula he uses, but it has worked for him?

It is very hard to invest with borrowed money. Sure, the bank will lend on a home that needs work, one that you plan to put back on the market. But the interest is always higher than a standard mortgage, and you will need at least a 20 percent down payment. If you spend a month getting the home ready and another two to three months for closing, the interest adds up and compounds daily. It will eat up a great deal of the profit. Though it can be done, it does make it more difficult. You must buy at a price low enough to offset your costs. You make your money when you buy, not when you sell.

To be a risk-taker in real estate you also must know the market. It’s like jumping off that bridge — once you jump it’s very hard to unjump. It is very important to keep in mind all the costs. The purchase price, the interest, and any repairs all effect the bottom line.

In a nutshell, be prepared to take a risk, have your financing in place, and know the market. From the masters that made it work years ago, these are the things needed to become a successful real estate investor.

If not, you will be like those young boys in the mid ’70s. We had the idea, but we were not willing to take the risk to achieve the goal of being master fox hunters. If only we had acted when the opportunity was presented to us, how differently life may have turned out for us both. I guess it was a good thing we just scrapped the idea and got real jobs.

Randy Butler is a lifelong resident of Highland County and a licensed real estate agent for Classic Real Estate in Hillsboro.

Randy Butler Contributing columnist
https://www.timesgazette.com/wp-content/uploads/sites/33/2019/04/web1_Butler-Randy-new-mug.jpgRandy Butler Contributing columnist