Ten Real Estate Investing Tips
Real estate investing tips tend to be a bit vague, like "invest
in the right location," or "make sure the numbers work."
Actually, tips like these are important principles to remember.
However, since they have been well represented in other
articles, I want to share a few more specific tips with you.
1. Listen to the market. The cabinet guy looked to me for a
decision. I realized that I knew nothing at all about which
cabinets people like, so I asked him which ones others were
choosing, and he pointed to one that three quarters of his last
forty customers had chosen. That's the one I want, I told him.
Why argue with the market you are trying to sell to?
2. Do your own research. The real estate agent might show you
only the comparable sales that make the property look more
valuable. Do your own research. Some counties have made it easy
now, with sales prices online. You can also search any number of
sites with MLS listings, just to get an idea about the asking
prices of other nearby properties.
3. Partner carefully. When you do a deal with partners, be the
money or the management, but not both. Group decisions tend not
to work well in real estate, and will cause you much stress.
Once you decide on and agree to a plan, step back if you are
investing the capital, and let your partner do his thing. Of
course, step up and take control if you are managing the project.
4. Negotiate openly. Just ask a seller outright, "What do you
want to get out of this?" It is rare that someone is offended by
this simple question, and it saves you from wasting valuable
time talking about things that don't interest him or her. Once
you get a clear answer, you can decide if you can give them what
they want, and still get what you need.
5. Invest safely. Investing isn't gambling. There is always
risk, but the difference is that the odds are in your favor. If
not, you are gambling. This why you shouldn't invest based on
continued price increases. There is no guarantee that prices
will continue up at any particular rate. Do deals that work even
if prices go nowhere, and if values go up, you're that much
better off.
6. Run the numbers. It is about the numbers, and if it is income
property, it's about one number in particular: cash flow.
Whatever the local formulas are, whether gross rent multipliers
or capitalization rates or whatever, just be sure that after
every last expense you'll have cash flow from the very first
month.
Rules, formulas and real estate tips are really just guidelines.
Even the rule above about cash flow can be broken if you know
that rents can be raised soon, for example. You have to use
common sense and learn from experience, and you can't replace
good analysis with rules, formulas and real estate tips.