Whether you’re buying real estate to live in, to put tenants in, or to resell for a quick profit, it’s important to have a strategy for where and how you should buy.
My first recommendation is to buy local (both real estate and produce!). Why? Because that’s the market you know. It’s far easier to understand the ups and the downs, where the great shopping and best schools are, as well as area trends and future growth plans. The best buying decisions are made when you’re informed.
Some people buy statewide, nationwide, even international. My concern is that it’s hard to truly understand the neighborhood and the trends at a distance – possible, but more difficult. The grass is not always greener on the other side, and it can be difficult to reach and enjoy. The easiest and fastest way to succeed in real estate is to learn your local market and create a plan that works for you there.
What else do you look for? Pricing, of course. ONLY buy properties that have value – today. Never buy with the “hope” that values will increase. The past five years have taught us all that “betting on the future” is not a good idea. When you buy a property that has equity on the day you purchase, if the market continues to drop, you have enough value to allow for decline without devastation.
We like at least twenty percent equity when we buy. If a house is valued at $100,000, our goal is to purchase for no more than $80,000. Those deals are available, perhaps now more than ever thanks to foreclosures, short sales, and free and clears (properties with no mortgage). Properties with a lot of equity often need repairs (which is why it doesn’t sell on the retail market). As an example, if you buy a fixer-upper with an after-repaired value of $100,000 – you purchase for $50,000 and put $20,000 worth of repairs into it – you then have a $100,000 house for only $70,000.
And, if you’re planning to hold a property and rent it out, it must cash flow. After paying all of expenses on a property – principal, interest, taxes, insurance (PITI) – you should be able to rent it out for a minimum $200 above those costs. That $200 can then build a repair fund for the property to cover needs such as: new roof, new appliances, carpet and paint when tenants move out, etc. And, in case the economy continues to decline, it also allows a reduction in rent without needing to come out of pocket for monthly ownership costs.
When buying as an investment, never get stuck with a bad deal because you’ve boxed yourself into only one way to “sell” the property. Always plan for “multiple exit strategies.” It’s best if the property gives you the ability to: price low enough to sell it on the retail market; be able to rent or lease it out with positive cash flow; be able to flip quickly to wholesalers; and be able to owner finance to a buyer who can’t get traditional financing.
Where and how do you buy real estate?
Jan 31st, 2013 / 5:40 pm
Thank you, Dan, for reading my post and for leaving a comment!
We no longer offer coaching and training but we do have monthly investor meetings. Check it out: https://www.meetup.com/Greensboro-Whol/
Thank you, again, for taking the time to comment and please keep me posted of your progress going forward!
Jan 31st, 2013 / 2:43 pm
Hi Karen,
Thank you for the articles you present. We have purchased 3 single family homes in the last 18 months all falling in the category that this article talks about. All 3 were listed in the traditional way, 1 was an estate, 2 as foreclosures. We really didn’t think or know that there are other ways to purchase properties at a tremendous discount. Our goal is to purchase 16 single family homes total over 5 years (by age 55). I was introduced to you through the BP radio podcast (enjoyed it very much) and I appreciate the knowledge you share. I am very interested in learning the other ways to purchase properties. The first tip I’ve learned is to do mailings to homes that are not on the market. Thank you for that and we look forward to learning other avenues.