Investing 101: Be Ready to Walk

This is a great market to invest in.  Prices are at all time lows, some are even seeing value increases, which means more and more folks are looking to invest in real estate again.  Many investors are first time investors.  Investing in real estate is a little different that buying home. Over the next few months, I will explore some of pitfalls I see novice investors make all the time.

This month I wanted to touch on "Be Prepared to Walk."

When you make an offer to purchase a home there are often emotions that factor into that offer.  When investing in real estate, emotions are present, but numbers and analysis need to play a bigger role.  Often investors "like" a property and that is what makes investing fun.  However you need to make sure you get the deal you want or you need to be prepared to walk away from the property.  

Be sure you do your due diligence: What is the rent rate for the area?  Have you factored in vacancies and repair costs?  Are there current tenants?  What rental terms are they currently on?  What is going on around the property that could affect your ability to find tenants?  How long will it be before you recoup your investment and are making profit?

If the numbers work, then make sure the deal you negotiate supports the investment's purpose. For instance, some people invest to increase their monthly income, some people invest to ultimately sell in 5-10 years and make a good equity profit.  Know your purpose and make sure the deal you negotiate reflects the ultimate purpose.  If it doesn't, then don't be so emotionally tied to the property that you can't walk.

This being said, don't make investment offers with a take it or leave it attitude.  Remember, true of any negotiation, successful deals make both the buyer and seller happy.  Maybe the seller is offering you a deal that has a positive margin but the margin isn't quite as big as you would like.  Is it big enough to still make the purchase worthwhile?  Giving some on one deal can sometimes lead to better deals down the road.  Perhaps the seller has a quad to sell a few years later with great margins and had such great experience selling to you that you are the first investor they call when selling their quad.

Investing in real estate is fun and can be lucrative, but use caution, do your homework, be fair to the other party, and know when a deal just doesn't work.