The Second Opinion: An Investor’s Best Friend
By Paul Esajian on July 21, 2014
Real estate investing is a lot like baseball, as it can be viewed as a team sport based on individual performance. You can have all the education in the world and a great team around you, but the final decision on every property is yours alone. This will work if you have conviction in your beliefs and truly know the market you are investing in. However, there will be times in every investor’s career when they will come across a property or a business decision that may require a second opinion. In these times, it is important that you seek out someone who will give you their honest, unbiased take on the situation. Sometimes not hearing what you want to hear is the best way to see things for exactly what they are.
There is a large segment of investors who avoid working with someone solely because they have an opposing view of the market. The reality is that this is exactly what you should be looking for. If you only have people around you that will tell you what you want to hear, there is really no point in seeking their opinion. By partnering up with someone who shares the opposite view or will question your decisions, you are far less likely to get caught up in a bad property. This mentality works, not only with any business partners, but also the people around you as well. If your realtor, attorney, contractor, mortgage broker and even accountant are telling you to stay clear of a situation, maybe you should listen to them.
There is a natural excitement that every new deal brings. It can be very easy to get caught up in this excitement and run with it all the way to the closing table. It will only be several months later when reality will hit. Before you even know it, you could have entered into a bad deal. By seeking out a second opinion from someone who may see the business differently, you can avoid making a regretful decision. You may have put in weeks of due diligence and have big visions for the property, but they may not be grounded in reality. Nobody likes getting their bubble burst or hearing that their thinking may be way off, but it is far better to hear this before you buy than when you are in the midst of spending money on the property.
This strategy should be applied, not just on individual deals, but in every area of your business. If you work without a partner, the buck stops with you on every business decision. Under this scenario, it is more important to network with everyone you can in the business so you can reach out to them when questions arise. Every decision you make impacts the rest of your business decisions so if you aren’t confident you know about a particular area you have to reach out to your network and find out. If you have a question regarding a contract or an individual property, you should be able to call your realtor. If you have a legal question, you should reach out to your attorney. If you have a question regarding an LLC or other legal entity, your accountant should answer that. When working by yourself, you may only see things one way but that doesn’t always make them right. Use your network and your contacts to get second opinions, even when you don’t think you need them.
As much as a second opinion can be helpful, you should be careful with exactly what advice you take. If you ask five fellow investors their opinion on a situation, you may get five different answers. You can certainly listen to as many opinions as possible, but you should also take into account the sources. When dealing with fellow investors, what has worked for them may not work for you and your particular situation. They may have had one dealing with a particular lender, attorney or buyer and base their entire opinion on that dealing. There is a difference between seeking an opinion and seeking the advice from a professional. The odds are that your attorney or accountant will give more of an unbiased opinion than anything else you hear.
The more people you have in your corner that know the business and know what your goals are, the better decisions you will make. Some of the best people to ask are the ones you know will give you a hard time. You may get frustrated, annoyed and even a little angry, but if you know they have your best intentions in mind you should be able to deal with them. Closing on a profitable deal is the culmination of all your work and the decisions you made along the way. All it takes is one or two bad decisions to change everything in your business and on an individual property. If you have even the slightest doubts, you should reach out to your team and get a second opinion. They may not always give you the answers you want to hear, but hearing it before you buy is always better than after.
Things can change from month to month and deal to deal. What may have worked just a few months ago may not work now. Getting as much information and as many different opinions as you can will help you make the best choices for your business, even though you may not agree with them at the time.