The real estate market is really starting to explode so there is no reason that you should not be able to hit your financial goals. Here are the answers to the top 3 questions I receive about real estate investing:
- How do I find a good deal?
- How do I know it will sell?
- Where do I get the money?
1. How do I find a good deal?
First let’s understand that the very definition of a good deal is that we are going to buy it well below market value and possibly with great terms. The average homeowner looking to sell their house is not likely to want to provide either.
So we are searching for the motivated seller. One who has a compelling need or desire to sell immediately. In fact, the best deals come from motivated sellers who are not actively looking for solutions and do not have many options – if any at all.
The motivation might be finance related: facing foreclosure or bankruptcy; lost job and can’t afford the house any more. It could be family related: divorce or death in the family. Or it could be house related: needs significant repairs or has a bad tenant.
The best way to locate these types of sellers is to implement a marketing campaign and have them contact you. If you are still trying to “drive for dollars” looking for potential houses you are wasting your valuable time. Even Realtors are not a great option because most truly motivated sellers never list their property.
With a targeted marketing campaign you can have motivated home owners contacting you begging you to buy their house. You’ll also have more leverage when they call you instead of you calling them.
The key to a successful campaign is repetition. Marketing is not about having a prospect see your offer once. Your message must be seen numerous times before the masses will take action. Think about this: when is the last time you saw a TV commercial for any product just one time? That’s because the ad companies understand the power of repetition.
2. How do I know it will sell?
Because you’ve done your homework. You’ve studied comparable sales data and you know at what price houses are selling. You’ve done the analysis and you’ve calculated the right price to pay that covers all the costs and leaves a profit (for both you and your investor buyers) and you’ve have created value for the end buyer.
End buyers evaluate value using this formula:
Value = Price + Amenities
Negotiate to purchase your deals so that you give your buyers the best value proposition.
I created a Deal Analyzer in which I can plug a few variable and it tells me the right price to pay whether I am looking at the property as a wholesale for rehabbers; a wholesale for landlords; a rehab for myself; or a rental property to keep.
Here is a very simple formula to use for rehab properties whether you are rehabbing yourself or wholesaling to a renovator investor:
After Repaired Value – Rehab dollars – Buying/Holding/Selling costs – Wholesale Assignment Fee – Rehabber Profit = Highest Price to Offer
That is the highest price you can offer…certainly not your targeted price. This is the point where you walk away from the deal. The further below this level the better the deal.
For rental properties the calculations are far too complex to cover here. What you want to consider is: Cash flow; Equity position; and ROI
Some sound advice that I give all of my clients is to step back a moment from the house and look at it through the buyers’ eyes. Don’t look at how much money you’re going to make. Look at it from the point of view of the buyer who is asking WIIFM? (What’s In It For Me?) Make sure there is a good answer.
3. Where do I get the money?
Simple: OPM & OPC
Other People’s Money and Other People’s Credit
The beauty of real estate investing is that you can leverage a very small amount of money to control large amounts of real estate. Frankly, the goal should be to use NONE of your own money and tie up NONE of your own credit.
With all of the properties I have purchased over the last 20 years the majority of them were purchased 100% with OPM & OPC. And that includes all project costs (Purchase+Rehab+Holding).
It is possible to get up to 100% of the purchase price during the negotiation. If the Seller has significant equity, I shoot for short term interest free seller financing. If the have minimal equity, I shoot to purchase the property subject to the existing mortgage. Sometimes I use both on the same property.
Any additional funds required can be filled in with Private Lenders – private individuals that make real estate loans to investors.
The more that you understand creative financing techniques; the more deals you will be able to complete and you’ll be able to do it without your own money or credit.
There you have it…answers to the top 3 real estate investing questions I receive regularly. Obviously thee answers are still high level – they were intended to point you in the right direction.
If you would like personal coaching on these and other investing topics visit www.InvestorRiches.com/mentoring and let’s discuss working together on a one-on-one basis.
Expect Abundance,
Lou Castillo
