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Real Estate - Five Ways to Make Sure the Price is Right

Aug 17, 2007
One consistent fact about investing in real estate is that you determine your profit when you buy a property. You goal is to buy low and sell high. If you pay too much at the beginning, you've stolen profits from yourself. Never buy a property at market value, unless you have no desire to profit. There are five ways to make sure that you avoid this mistake.

1: Know the property values

You have to research and understand the neighborhood property values. This step is critical for your success. You need to actually visit any property you're considering and compare it to other properties in the neighborhood. Online research can't give you a feel for the neighborhood or the property.

Keep a detailed record of selling prices in the neighborhood for run-down and improved homes. You can gather this information from local real estate brokers, the county clerk's office, the tax assessor's office and from real estate appraisers. Collecting and analyzing this kind of information is often called a comparative market analysis, or CMA.

2: Estimate your project costs

Once you have information on actual property values, you can start to estimate how much you can spend and still make your desired profit. There are several types of costs you should consider. Acquisition costs include the purchase price, taxes and origination fees. Get estimates from several lenders and compare. Don't get surprised by extra closing costs.

Repair costs include everything you'll need to improve the condition of the property. This is where your visit to the property really pays off. You'll have a better idea what repairs are needed. You should also get a few contractors to provide estimates for some of the repairs.

Other possible costs to consider include inspections, a title search, a survey and a certificate of occupancy. You may also need title insurance and other types of insurance, depending on whether you plan to live in the property or not. Finally, there could be utility costs and other unexpected repair costs.

3: Check the Feasibility Of the Project

Once you've determined property values in the neighborhood, you're ready to evaluate the feasibility of your project. Start with the current value of the unimproved property. Add your renovation budget, other project costs and estimated interest to get a total project costs. Then add your minimum profit to that. If the total you calculate is more than improved homes sell for in that neighborhood, the project isn't feasible. Walk away.

4: Calculate the Maximum Purchase Price

Figuring out the maximum amount you should pay for the property works the other way. Start with the final selling price you think you can get in that neighborhood. Deduct your profit margin, as well as selling costs, renovation costs, and the other project costs listed above. The figure you end up with is the maximum amount you should be prepared to pay.

5: Negotiate Hard But Fair

Once it's time to purchase, you have all the knowledge you need to negotiate well. Your knowledge puts you in a position of strength. As you meet with the seller, strike a balance between sensitivity and professionalism. Negotiation is an art and it may take some time for you to be comfortable with it. But the steps above have given you the financial boundaries. It should be clear to you when it's time to strike a deal and when it's time to walk away.

The key to your real estate investment profit is in the purchase price. Everything about your project hinges on this critical number. Research into your target neighborhood and realistic estimation of costs will give you the knowledge you need to negotiate a profitable purchase price.
About the Author
Discover exactly how Sal Vannutini combined two of the easiest (yet brutally powerful) real estate investing strategies and made an insane $31,510 Profit In Just 49 Days... And How You Can Do The Same!". Visit www.FixerUpperFortunes.com
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