Investing in real estate can be compared to working on a computer without backing it up. With computers, it's not a matter of if, it's a matter of when your computer fails, and then you lose all your valuable, irreplaceable files in the process. With good backup strategies and systems, you can turn a major tragedy into just an inconvenience. In real estate, the same principle applies.

If you have enough deals over a long period of time, you will probably have one or two deals that just don't work out as expected and then you may even lose money. It happens to most at some point. Part of the problem is that, for the most part, we cannot individually control the real estate market and other factors, even local ones. The other problem is that experienced, successful investors begin to think they are invincible and therefore tend to slack off a bit, not executing as much as before. Below we provide a few tips to consider when you have a deal that is going in the wrong direction:

1. Don't chase your invested money

Some investors who have put a good amount of money on a losing deal decide that -because they don't want to lose their invested money- they will go through with it anyway because they want to save the deal. Sometimes the best financial strategy is simply to let the deal go, rather than putting more money into a losing situation. Setting up "escape clauses" in your contract helps a lot. Just don't overuse them, because then YOU will lose credibility. And then YOU will no longer be considered a serious investor.

2. Go through cases with confidants

It is always wise to go over the numbers with someone you know and trust. Someone who has the knowledge and experience to give sound advice. This could be a mentor, a lender or other investors. Good examples are lenders who will not take out a loan for the sake of your deal or investors who dare to give you good criticism at all times. There is probably a good reason for the way they think for and with you. Even experienced investors occasionally find a deal that carries emotional value, but we must instead learn to be able to separate fact from emotion.

3. Determine the point when to retreat

Business involves many variables, but the final analysis is all about the numbers. To be successful, you must spend less than what you are selling a property for. A profit must be made. Offering too much or spending too much to revive a deal makes no financial sense.

Determining your starting point is invaluable, but you must stick to it. In real estate (including short sales), it is attractive to keep pursuing a deal after you have invested a lot of time and even some money in it. It is better to lick your wounds and spend your time on another deal that makes more sense. Of course, it remains easier said than done!

4. Having multiple exit strategies

Having both a plan A and a plan B sounds very logical, of course. Just imagine that you have just renovated a property, when the local market decides to hit an unexpected low. Then you have the option of still selling it, losing money on the deal. Or you use another strategy: such as renting out the property, selling on a lease option or selling on a land contract. Although you would not receive what you would receive if you sold it at full price, this strategy does provide a possible break-even by turning it into a moneymaker.

5. Waiting for higher ratings

If you find yourself in a rapidly appreciating market, it may be wise to wait until property appreciation makes the deal more lucrative. It is a risky venture, but in some cases it can certainly work well for you. Beware! It is still a dangerous game and it is really based on speculation. In any case, make sure your equity stretches enough to do this.

6. Bring a partner

Sometimes if the loss is made up in a relatively short time and the deal becomes profitable, then it may make sense to attract a money or credit partner. Make sure that once the deal is completed, there is enough profit to continue, so you don't both lose money.

7. Selling at a loss or short sale

Sometimes it makes sense to sell at a loss and reinvest your remaining money and time in another deal that will provide the profits you need to continue running your business. For properties you already own that have gone "upside down" for whatever reason, consider a short sale where the lender(s) of your property allow you to sell the property for less than is owed on that property. There are so many different factors that come into play here (credit hit, seller contributions, etc.), but when you have a property that weighs you down monthly, it is best to think logically from a financial standpoint.

8. Continue to continuously gain knowledge and experience of the current marketplace

The real estate market remains in constant flux, sometimes benefiting you and other times taking a lot out of you. Therefore, it is vital that you are constantly aware of the current real estate market. Especially when making the right decisions about what is an attractive deal and which is not.

There are plenty of opportunities available for investors to attend courses and seminars to broaden your interest and knowledge in real estate. Remember, if you are in this world long enough, you may come across a deal that started out well but for some reason becomes less attractive.... Be sure to look at the big picture and keep your options in mind. That is where your success lies!

Rotsvast is experienced in the real estate industry and has been assisting investors for over 25 years. Our experience, expertise and the use of our network allow us to provide our clients with the best integrated real estate solutions. We are happy to prepare a no-obligation real estate scan for you during an introductory meeting. View our Real Estate Investment page or contact us directly for more information.