If You’re Not Making Money in Real Estate, This is Why
It is really important to have some guidelines to follow when you are starting your career in real estate investing. If you follow the rules, you can never really lose. On the other hand, with experience, you may be able to bend the rules and still make good deals.
Investing Rule #1 – Not All Deals Are On MLS
Most small unit residential property gets listed on your local multiple listing service (MLS) website, but not all. This is extremely important in the more competitive markets because the more people who see a deal means the more competition for you. As a new investor, you may not have the ability to compete against the big players, so you may want to focus on alternative methods of finding deals:
- Auctions – just like MLS, auctions have good real estate deals and bad deals. The number of potential buyers at an auction is much lower but everyone there is an investor. Additionally, you will need to have enough cash available to pay.
- FSBO – Some owners list their properties without the help of a real estate salesperson and these go on a ‘for sale by owner’ website. Often these websites are full of overpriced real estate listings, but occasionally you can find a gem truly worth adding to your investment portfolio.
- Word of Mouth – “I heard John over there on Rose St. is looking to sell his property soon.” Anytime you can get make an offer before a property hits the market is a win. If they accept, you can possibly pay far less than market value.
- Driving for Dollars – You know that property at the end of the street that is always overgrown and needs some maintenance? It may be worth your time to go knock on their door and find out what’s going on. When you have free time you can drive through neighborhoods you’re interested in and possibly find deals.
Investing Rule #2 – Asking Price is Not Related to Market Value
Browse through listings for just a few minutes and you will find a property that’s twenty thousand dollars more than others. You can also find properties asking for far less than what they could get.
The reality is, people often list their properties based upon what they hope they can get and usually people think their things are worth more than they are. The owner’s perception has no real bearing on what the potential investment is worth.
Unlike typical homeowners, investors are generally a very rational group of people who really understand real estate. They may be asking for top dollar but they probably know the lowest number they will accept. Do not be afraid to offer what you think it’s worth. It’s rare, but investment properties can and do sell for half of their asking price.
Investing Rule #3 – Due Diligence and Inspections are Mandatory
You don’t want to close on a house just to find foundation problems or termites so do the inspections up front. If you do find something, you can usually negotiate a more favorable agreement.
Also, don’t forget about a proper title search. Ensure the title company is going back 50+ years or to the last instance of government ownership. Why? Well, imagine you get a phone call one day finding out a great grandparent died with no will leaving the equity to their 7 children and now some of those children have since passed away. You find out there are 15 potential claims against the property! This is a true example, so it can happen.
Continue reading the rest of the rules to follow when buying investment property here.
Written by Eric Bowlin, U.S. Army
Founder of Ideal Real Estate Investing: idealrei.com
Great post Eric. I’ve found that I rarely find deals on the MLS. Most of mine have come from my network of other investors, including wholesalers and people I connect with on sites like this and at local REI club meetings.
Regards,
Colin