Real estate investing involves the purchase, ownership, management, rental, and/or sale of real estate for profit. Improvement of real property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.
As part of RealSuccess, we want our students to buy homes below market value. The next step is to find motivated sellers, the frame offers that benefit you and the homeowner.
Understanding the importance of getting a good price on a house whenever you buy it is vital to success.
There are basically four steps to investing in single-family homes:
Step #1: Buy homes below market value.
Yes, people really do sell homes for less than the home’s full value. The key is to understand that most homeowners will only consider a purchase offer that is all cash and within 5% to 10% of their asking price.
A successful investor learns to find financially distressed homeowners who have no choice but to sell for less than market value. Some have lost their job, been transferred, divorced, living beyond their means, experiencing overwhelming medical bills, and have addiction habits. Those are examples of motivated sellers. They have to sell and they will accept something other than a conventional all-cash offer.
Step #2: How do you find motivated sellers? You work at it!
Like any business, it is important to develop a marketing plan. One that is simple, yet very effective, is one proven 75 years ago by the Fuller Brush company; door to door sales.
You’re selling your skill as a home buyer to people who must sell. You’ll be there when they need you and you’ll have the skill to help them solve at least part of their problem. With door to door prospecting, you will learn more and buy more homes quicker than any other method. However, most people just won’t walk door to door for three or four hours per week. OK, there are other ways.
You can watch public notices for the announcement of foreclosure sales. Meeting with a homeowner right after they’ve received a notice they’re about to lose their home opens the door for a very motivated seller. Other public notices that provide buying opportunities include probate, divorce, and bankruptcy. You can follow the Homes For Sale listings in your local newspaper or Internet site.
You can call the names found in these notices which are the least time consuming, and send postcards expressing your interest in buying their property. It will produce buying opportunities, just not as many as personal contact.
Step #3:Frame your deals
After you’ve found a motivated seller you must understand how to frame offers that provide benefits for both you and for the homeowner. A good real estate investor quickly learns that this is not a business of stealing property, but of solving problems in a way that benefits the seller. The homeowner is in a tight spot of some kind and you can save them from public embarrassment and in most cases, give them at least a little cash to start fresh.
No investor can afford to leave cash in every deal. You must use creative techniques like, leases options or taking over mortgage payments. Little or no cash is needed for those deals.
Step #4: You make your profit when you buy!
Never make a purchase until you’ve carefully determined exactly how you will get to your profit. If you hold it as a long term investment, Will the monthly rental income cover more than the monthly mortgage payment? Should you sell the deal to another investor for fast cash? Is renovation an option and sell the property for full value? Will you quickly trade it for a more desirable property? Have a plan before you buy it.
These are four steps that even a part-time investor can execute in three to four hours per week. What’s the missing ingredient? Number one, your determination and perseverance, and number two having a good support system with a coach or mentor.
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