Knowing what a Good Deal is – Is Key to Success in Real Estate.
Knowing and being able to negotiate good real estate deals every time is key to real estate investing success. What to look for, and how to calculate your profit, cashflow and risk exactly and then evaluate deal is revealed. These techniques apply to all real estate investments including foreclosures, short sales, rehabs, flips, muliti-family, lease option and owner financing.
Take this little survey: The most important key to Real Estate Success is:
1. Finding Motivated Sellers 2. Funding Your Deals 3. Negotiating 4. Knowing a Good Deal when you see one.
Yes all of them are important. And if you answered #4 – you're right on money. Why, because if your deal is a not good one, all your other skills and marketing and power will not make you money, and may even lead to disaster.
On other hand, if you can unfailingly target good deals, you will always be successful and all other skills and your marketing methods will serve to increase your success.
It's a lot easier to state question than give answer. Why?
SO... WHAT IS A GOOD DEAL?
It's a lot easier to state question than give answer. Why? Because it depends on many factors like: > Market value and purchase price > Expenses, carrying costs, repairs > Cashflow and profit > Holding time > Loan terms > Risk factors > And more . . .
And most importantly, it depends on type of deal you're doing. For example, if you have a loan on a property that you intend to rent or sell on a lease option, terms of mortgage, future tax increases, and current area rents are critical to consider in insuring a positive cashflow. However, if you are planning to do a short rehab job, and sell or just flip to another investor, rental income is irrelevant as are future tax increases.
IT'S WHAT YOU DON'T THINK ABOUT THAT CAN GET YOU
The thing that trips up many investors, is that in our enthusiasm to do a deal that we've found, we don't take into consideration "hidden" costs.
For example, if you're doing a renovation and you've done your due diligence on contractor costs, have you also considered your carrying costs such as mortgage payments, utilities, etc. not only during renovation, but also time it will take to sell and close with a new buyer?
Or if you're using a realtor to sell property, have you calculated effect of a 6-7% commission and closing costs seller will pay on your bottom line. A 10% profit margin can shrink pretty quickly to zero under those circumstances.
READ THOSE LOAN TERMS CAREFULLY
Or have you taken into account, not just your loan to value ratio on property, but your investment to value ratio (e.g., total of all outstanding loan balances plus additional funds you've put in from your own cash or borrowed from your home equity line or friends and family)?
And on income side, have you calculated how long you should hold property to receive a significant profit from pay down of mortgage. With a new 30 yr loan, you may have to wait 5-10yrs to get same pay down you'd get after a few years from a 30yr loan that's been seasoned for 10 years. And did you carefully read note contracts to take account of adjustable rates and pre-payment penalties?
CHECKLISTS AREN'T ENOUGH
A number of courses and real estate gurus will give you checklists. That's helpful in not forgetting something, but it doesn't help you with laborious and complex task of putting all numbers together.
There's just something about working with actual real numbers, that brings reality of deal into actual focus. Our hopes and wishes dissolve before actual profit and loss calculations.
Moreover, numbers can pinpoint weaknesses in a deal, and point way to a solution. No mere checklist can do that.
WHAT ABOUT RISK?
I think you'll also agree that a Good Deal, is not just High Profit, but also, most importantly Low Risk. Many a dream of a golden future has come crashing down because some little thing went wrong. Many a would-be mogul, is now working at a 9 to 5 because their killer deal was wrecked by an unforseen glitch. This is what we mean by high risk.