Tips for investing in real estate: 5 things to know

Investing in real estate is simple, but not necessarily easy!
You see, people can complicate anything! It’s like telling someone how to drive a car. It’s nothing complicated. Just open the door. Sit down. Start the car and put it in gear. But, people always make things more difficult than necessary; They start asking questions like ‘which door should I open, the left or the right?’ or ‘Do I unlock it with a key or do I click the button?’ and we go on and on. Twenty minutes later, we still haven’t even been able to get into the car.

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

Here are the 5 real estate investing tips you need to know!

Tip #1: Find a motivated seller

Stop wasting time trying to make deals out of deals that don’t exist. Sellers are motivated to sell real estate for just 3 things:

1. Change of personal situation. Sellers are highly motivated to sell their properties when things in their personal lives change and they can no longer afford the house or there is an emotional reason to sell. Personal reasons for selling a home are: job loss, divorce, moving, illness, etc.
2. Economic conditions.
3. Property Conditions

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 numbers. There are 5 factors to consider when deciding whether or not to invest in a property.

1. To lease. If the property is located in an area full of abandoned properties and dilapidated houses, the score will be lower than if the house is located in a prime location, close to all of the area’s amenities.
2. Condition. The better the state of the property, the higher the score. For example, a new home will score substantially higher than a property that is deteriorated and in need of major repairs.
3. Price. The lower the price, the better! The goal is to buy real estate for the lowest possible price. 30% or more below market value will score much higher than when the seller asks for market value or better.
4. Money. Real estate comes down to numbers. If the seller is willing to provide financing with flexible terms and low interest rates, and you don’t have to put up any of your own money, it’s better than when the seller needs all the cash up front.
5. Seller Motivation. On a scale of 1 to 10, how motivated is the seller to sell his property? The more urgent his situation is, the higher his motivation score will be.

Tip #3: Write an Offer

After you’ve done your homework and looked at the numbers, it’s time to put pen to paper. But before you write your offer, make sure you have 2 exit strategies in place. This way, you’re not stuck holding on to real estate that you can’t rent or sell. Many people are losing their shirts in real estate because they jumped into preconstruction 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 your situation. For example, you might have a wholesale offer at 50% of market value, a seller-financed alternative that you could use for a rental, and a lease option that could make a sandwich lease option.

Tip #4: Align Your Funding

Once the seller has accepted one of your offers, it’s time to close the deal. If you are selling the property wholesale, find your investor-buyer. If you’re going to close it yourself, line up financing through a conventional lender, hard money lender, or line of credit. Also start looking for a tenant or a tenant-buyer if your goal is to build a long-term real estate portfolio. The key is to align your financing according to your exit strategy and get moving right away.

Tip #5: Stick to your plan
Many real estate investors buy a property with a buy-fix-sell plan. They write the offer based on a certain sale price and with a specific plan to renew. Then once they close on the house, they either over-improve it 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 out.

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

Remember, investing in real estate is like driving a car. It is simple. Hop in, turn the key, start it up and off you go!