Many beginning investors set out to buy the best property they can—consumed with analyzing numbers and earning the highest cash-on-cash return that they can. That’s a dangerous game. Here’s why.

Properties that look like they produce greater cash flow than other properties in the area are sometimes like that for a reason. I learned this the hard way. I purchased property without thinking about who would buy it from me when I was ready to sell. It’s a rookie mistake. Always think about the “buyer pool” for the asset before you buy it. Unfortunately many of us get caught up in the “unbelievable” amount of cash flow one property can produce without considering the reasons it behind it. Properties that produce abnormally high cash flow (when compared to other competing properties in the area) usually do so for one reason: they have to. Oftentimes sellers will put a little extra frosting on the cake so you don’t see that’s really one giant pile of crap!

That’s not to suggest you won’t run find highly motivated sellers willing to sell quality property at a discount. On the contrary, it happens all the time. We’re all looking for great opportunities. We all want to invest in good property that’s priced right. Certainly I’m not suggesting that every property you find that appears to outperform competing properties is doing so because it omits a terrible odor. But sometimes that’s what it takes to sell a property nobody wants.

It’s not a bad thing—certainly you can make money buying these types of properties—especially if you buy them at a steep discount. But you have to get past the frosting. You have to see the property for what it is today and visualize what it will be in the future and then ask yourself, “Is there anything about this property or the area that will limit the number of buyers willing to invest in it?”

I’ve made tons of money buying someone else’s big pile of you know what. But they rarely produced as much cash flow as I thought they would. It’s easy to get caught up in the numbers and forget about the buyer. You must have a plan. What is your exit strategy? Do you know and understand who will buy your property?

There’s a lot that goes into that—and it’s outside the scope of this article. If you’re investing in apartment buildings and raising money via the many alternatives we describe in Where Do I Get The Money, you know your investors want to understand your exit strategy. They’re more concerned about the return OF their investment than they are the return ON their investment. If the property doesn’t produce the returns you projected, that’s obviously not a good thing. But if your investors take a loss or lose all their money—well, that’s a whole lot worst.

An exit strategy is in the forefront of all investors minds and it should be on yours too. When you write your business plan, you must be aware of this critical detail before preparing the document for potential investors.

It is vital that business plans explain the exit strategy in detail. Carefully consider the property, market, and buyer pool—you don’t want to get stuck with something you thought was chocolate cake.