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Everything You Need to Know About Investing in Real Estate (Almost)

We’re not here to claim that a bit of real world experience doesn’t provide worth when it comes to buying a piece of investment property, but don’t make the mistake of thinking it’s some sort of exclusive club that only allows entry to those who know the secret handshake. While secret handshakes are all well and good, and might make us feel superior for a few seconds, the following four items are all you really need to know in order to craft a successful property buying career.

It’s all about price
Another way to say this is that you should never, EVER pay too much for a property. What long time investors have come to realize is you make your money when you buy. The price at which you will eventually be able to sell the house is essentially set, decided by the market. This means your profit lies in that area between the eventual price and what you pay at the outset. Obviously, you want to pay as little as possible, and should never go into negotiations without a firm upper limit in mind past which you won’t go. A good rule of thumb is never pay more than 65% of the after repaired value of the property. Pay more than that and there’s a good chance you’re not going to make a profit on the backend.

Be stingy with your money
Let’s say you’ve got half a million in cash reserves sitting in the bank. You certainly have the means to buy a piece of real estate outright, without a loan, but does that mean you should? Absolutely not! Long term success in real estate is largely determined by how little of your own money you manage to put into the deal. It’s all about the financing, baby. Think of it like this. You could buy a single property outright for $500,000 or, more wisely, could finance five similar properties by putting 20% down on each and getting your friendly neighborhood banker to pony up the rest. To a certain extent, investing in income producing properties requires us to disregard the old fashioned notion that debt is bad. ALL debt is not bad. In fact, a fixed-rate, long-term mortgage tied to a piece of income producing property is probably the best financial decision you’ll ever make. The bottom line: put no more of your own money in the deal than you have to.

Hire renovators
Whether flipping houses or renting them out, it’s rarely a good idea to do your own renovations. It takes too much time, and time is your most valuable commodity. You make real money in this business when you’re out beating the streets for new deals, not whilst trying to save a buck personally hanging drywall. Early on, it’s crucial to assemble a team of go to renovators who will do good work fast, and at a reasonable price. If you got into the real estate business because you enjoy remodeling, it might be time to give that decision another think. Forget the enticements and do-it-yourself come on’s from practically every show on HGTV. They’re not in the remodeling business. They’re in the television advertising business!

Find motivated sellers
Don’t make the mistake of getting hung up on the curb appeal and interior condition of the property itself. These are secondary concerns to finding a motivated seller. If you’ve got a seller who is desperate to unload, you’ve got the makings of a great deal no matter what the place looks like. Not to be too macabre about it, but look for the Four D’s: Death, Divorce, Disaster, Disease. These events create motivated sellers, and you’re helping them out by taking the property off their hands. These days, it’s typical to find a motivated seller languishing on the verge of foreclosure. While you might feel a twinge of guilt at driving the price down, down, down, you shouldn’t. You’re actually doing them (and their credit) a very big favor by stopping the foreclosure process dead in its tracks.

Finally, we’d like to suggest you pick a system that works and stick with it. Nothing fails quite so readily as an investor with the stability of a butterfly. He’s all over the place. Flipping houses today, buying and holding tomorrow. There’s a million different approaches and each is effective for someone. Find the one that matches your personality and work it like you mean it.

The Heroic Investing Team

 

 

 

 

 

Flickr / Rego – d4u.hu

 

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