ABSTRACT – Avoiding those bad flip scenarios. Some properties are NEVER investment targets deserving of our time and money. But avoiding lousy flips…exactly how? One of the best ways is to look for Persuasion Factors. If it is a unworthy flipping target, they will be there, and should be listened to. Read on to understand more.
“When to Bail On A Target Property”
Like Focal Points, Persuasion Factors get to a buyer wants, desires, and their extra’s. While there is some shared approaches with Focal Points, Persuasion Factors are a different breed. There is nuance at play. Because what we care about here is avoiding bad real estate deals as a flipper.
We still focus on buyer perspectives. But now we are considering DAMAGE CONTROL not positive property improvements.
Consider the sale from future buyer perspective and consider potential negatives that you can not overcome, regardless of effort. Yes, we still want to focus on buyer perspectives. But now we are considering damage control, not positive property improvements.
Our infamous “Persuasion Factors” examples discussed in The Pessimist’s Guide that could require heavy discounting later on. These are the kind of things that help in the quest of avoiding bad flips.
A Sunny Disposition
Many entrepreneurs are natural optimists and fail at avoiding bad flips because of this. A bias towards the positive absolutely helps in business. Seeing opportunities in your dealings rather than just risks you have to assume, gets things done. Without some optimism there is always a reason, “not to do it”. It is generally a very good way to be.
But it can also prove a blind spot when we start talking about avoiding those bad real estate deals. That is, if you are focused on the ‘good’ will you unconsciously discount the impact of the ‘bad’?
Think of it this way, once you buy a property – it’s yours in every sense of the word.
What does that mean? Well, that collection of barriers to a future sale (such as prior owner neglect) are now yours to overcome. Well that is largely what makes a flip target an opportunity (!) you say.
Yes, and you are right when we are focusing on general issues and the potential for great Focal Points. But when we move to TRUE barriers to a future sale, that perspective must change.
Guideposts
Here we are talking about items that no seller can overcome because they can not control the issue. Or circumstances where the cost of remediation is simply too high.
We have strayed into full blown Persuasion Factors. That is what you always need to remember. And ignoring them reduces the likelihood of avoiding bad flips.
Those are your guideposts. Not just WHAT needs to be improved, but what can NEVER be improved.
And it is the collection of such factors – that are central to avoiding losing real estate deals out there. Minimizing risk is our goal – Always.
Guidelines for selecting a target property are laid out in, “The Five & Five” and “Physically Qualifying A Property” Chapters of The Pessimist’s Guide, (Read more HERE on the website or visit on Amazon HERE.) 
Of equal importance is to trust your own read of the target. Again, no system or seminar should override a “no-go” decision by you the investor. It is your money at stake after all.
The good news is with practice such factors are often identifiable before you sign a contract or a check.
If you’ve done your job of persuasion factor analysis, the a buyer’s financial equation now has better odds. You won’t commit to the purchase at all.
What about pricing? Isn’t that the antidote to avoid bad flips?
Sometimes, sure. But it comes with a caveat. Imagine you’ve got a great understanding of most of the moving parts of a flip. You’ve identified a target holds some great potential Focal Points, but also some significant Persuasion Factors.
You wonder if they can be overcome. And it gives you pause as you consider making an offer. Time to take a risk since you can’t fully clear the fog and buy the property in question?
The Seller is smart and motivated, and sweetens the pot.
Your seller is a smart and motivated one. She steps in and offers a steep discount on the pricing front to make an offer enticing. “Wow, the dynamics here, and my analysis just changed dramatically”, you think.
What do you do? Again, this comes back to a buyer, as it always does…imaginary or otherwise. Would the price reduction allow you to make the important improvements and generate future demand despite these significant misgivings? Despite these Persuasion Factors?
Is the answer is YES? Then probably what is going on is the Persuasion Factors in question are not full-blown ones. Alternatively, if they are absolutely consequential, you as an investor unconsciously believe future pricing (e.g., cheap listing) will surmount them.
Great! Just remember, discounting you provide to a future buyer after all your hard work MUST still insure your return. If you can get a similar return via a higher priced property with NO Persuasion Factors…why not go that route?
My advice? Avoid the drama.
Avoid Persuasion Factors in just about each and every set of circumstances. It is easier to sell without them, and with knowledge and learned observation skills, should also be very doable.
Because, again, you are taking on a liability you did not create, can not control, and can not improve.
Because, again, you are taking on a liability you did not create, can not control, and can not improve. I always come back to that simple idea. It is a headache not of your making but yours nonetheless. Persuasion Factors put your investment at risk once you sign on the dotted line.
The key is to remember that unlike Focal Points, Persuasion Factors can not be readily remediated by an investor. And if you are not looking for them…there is always the chance you will miss them.