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Real Estate Investing Tips: 5 Things You Need to Know

Aug 17, 2007
Real Estate Investing is simple, but not necessarily easy!

You see, people can complicate anything! It's like telling someone how to drive a car. It's not complicated at all. Just open the door. Sit down. Turn the car on and put it into drive. But, people always make things harder than they need to be... They start asking thinks like "which door should I open... the left or the right?" or "Do I unlock it with a key or click the button" and on and on we go. Twenty minutes later, we've still not even been able to get into the car.

I liked that analogy because it applies to real estate. There are really 5 things you need to know - or steps - when it comes to real estate.

Here are your Top 5 Real Estate Investing Tips!

Tip #1: Find a Motivated Seller
Stop wasting your time trying to make deals out of deals that aren't there. Sellers are motivated to sell a piece of real estate by only 3 things:
Change in personal situation. Sellers become very motivated to sell their properties when things in their personal lives change and they can no longer afford the home or there is an emotional reason for selling. Personal reasons for selling a home are: job loss, divorce, relocation, illness, etc.

Tip #2: Evaluate the Deal
Once you've found a motivated seller, it's time to decide if the deal is going to work. Real estate investing comes down to the numbers. There are 5 factors to consider in order to decide whether or not to invest in a property.

Location. If real estate is located in an area that is full of abandoned properties and rundown houses, the score will be lower than if the house was located in a prime location, close to all of the area amenities.

Condition. The better the condition of the property, the higher the score will be. For instance, a brand new home is going to have a substantially higher score than a property that's rundown and needs major repairs.

Price. The lower the price, the better! The goal is to purchase real estate for as little as possible. 30% or more below market value will score much higher than when the seller is asking for market value or better.

Financing. Real estate comes down to the numbers. If the seller is willing to give you financing with flexible terms and low interest rates and you don't have to come out with any of your own money, it's better than when the seller needs all cash up front.

Seller's Motivation. On a scale of 1 to 10, how motivated is the seller to sell his/her property? The more urgent their situation is, the higher the motivation score.

Tip #3: Write an Offer
After you've done your homework and looked at the numbers, it's time to put the pen to the paper. But before you write your offer, make sure you have 2 exit strategies in place. This way, you're not stuck holding onto a piece of real estate that you can't rent or sell. Many people are losing their shirts in real estate because they jumped in on pre-construction and hoped to "get rich quick". Consider submitting 3 contracts on the same property with different prices and terms and let the seller decide what works best for his/her situation. For instance, you may have a wholesale offer at 50% of market value, a seller financed alternative that you might use for a rental, and a lease option which you might do a sandwich lease-option.

Tip #4: Line Up Your Financing
Once the seller has agreed to one of your offers, it's time to get the deal closed. If you're wholesaling the property, find your investor-buyer. If you're going to close on it yourself, line up the financing via a conventional lender, hard money lender or line of credit. Also start looking for a tenant or tenant-buyer if you're goal is to build a long term real estate portfolio. The key is to get your financing lined up in accordance to your exit strategy and begin moving immediately.

Tip #5: Follow Through with Your Plan
Many real estate investors purchase a piece of property with one plan, buy-fix-sell. They write the offer based on a certain sale price and with a specific plan to renovate. Then, once they close on the home, they over-improve and try to sell it for more than it's worth or use a hard money lender and then decide they want to rent it.

If you follow these steps and remember the tips, then you will make money in real estate. If you deviate from the plan, then your chances of running into problems increase. You wind up with the wrong type of financing, you can't find tenants, the holding costs eat the profits, etc.

Remember, real estate investing is like driving a car. It's simple. Get in, turn the key, put it in drive, and go!
About the Author
Heather Seitz is the co-author of "Guerrilla Marketing for Real Estate"
and founder of the national Real Estate Interview series. She teaches investors
how to find motivated sellers, evaluate deals and renovate properties. Get free
real estate information, tips and training and sign up for her Real Estate Investing Tips at http://www.realestatetrainingacademy.com
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