How to Shop for a Real Estate Investment
Tonight I want to talk about how to shop for your Real Estate Investment. Whether its your 1st one or 3rd or even your 10th one. I think people go about this the wrong way. People think that they have to go with a realtor see a property, walk through the house, and look at it in various. Look through each room and see what is wrong with it or what is good in it. They are looking for good investment and evaluation the property which is the wrong thing to do.
If you are looking for a good investment the first thing you do is make sure it’s a good investment. Ideally what you want to do is look for properties that will cash flow. You will have to look at cash flow of income vs expenses. There are number of tools out there that helps you do this with spreadsheets or software or the gross rent multiplier which is very easy. You are looking for an investment that has the potential to make you money.
The first thing you want to do is shop, so you want to do your research on paper in your office or in your home wherever you can look at these. Go online on MLS, for sale by owners, or you can get a realtor involved and let them know what you are looking for. Tell them you are putting down 20% and based on that 20% it’s got to cash flow. You do all the evaluation before you even look at the property.
The next thing you do is once you have come up with 2 or 3 or 10 properties and and they all look good, you just make offers. Now what if they all get accepted? Well first you have to find a realtor who will be willing to make all those offers. You need to find a realtor that is willing to go that extra mile. So when you are making offers all you have to do is put in there certain conditions that will allow you to get out if you decide to not purchase that property. Obviously if you are putting offers on all these properties you are probable not going to want to buy all these properties unless they are amazing deals.
The best way is you make offers and you make them conditional upon financing, condition upon approval by yourself, there are a couple of causes that I can provide basically saying “Here is an offer and its conditional on me actually liking the deal in the end” Now the idea is that if you are going in and making the offer you are making the offer low enough that you will be comfortable getting the property at that price but yet you do not want to make it insulting enough that the guy at the other end doesn’t take you seriously and just walks away without even responding.
For example: You are trying to buy a single family home and its listing price is at $300,000.00 and you come in at $250,000.00 might be too low but $275,000.00 might be worth looking at. Now let’s say you have 6-7 properties that you are going in at $50,000.00 under list price and 2-3 come back at that price. So hey, so maybe there is a good deal there and then you go out and see the property. Make sure the numbers work, do a little research online, 90% of your evaluation should be done at home. So finally, you make 10 offers and you have three people that are interested and out of the three you have 2 or 1 you might consider.
Then you go with the realtor and go visit the property and if everything looks good and it’s not a dump and it’s going to be a good investment for you. Now when I say a dump what I mean it might be that is what you are looking for if you are doing a fix and flip, what I am talking here today is for a rental property. So you want to look at it so you don’t have to put a lot of cash injections into it.
Unless, again that is your strategy if you are buying a wholesale property you are buying really under value and it needs some work and you are ready to put that investment and then convert it into a rental property that is fine too. So you have to come up with criteria before you start looking so you know when you see that type of property
So then when you are in the property and you evaluated looking at it and you like it you proceed to the next step. That next step is removing the conditions, you want to look at getting an inspection and looking at arranging for financing.
So that’s probably the easiest way to the best way to approach shopping for a property. Again, don’t start jumping around, going to open house in Sunday or getting your realtor to look at tons of houses and finding out they just don’t cash flow. A lot of them won’t cash flow so it really makes sense to do your evaluation before you start looking.