Real Estate Investing By The Numbers

Just like most things real estate investing can be broken down into easy to learn step.

Just like most things real estate investing can be broken down into easy to learn step.

Step One - Learn the basics:

Ownership of real estate is evidenced by a valid deed. When you buy property the seller signs a deed that transfers his ownership interest to you. Most states use a Warranty Deed. With that deed the seller warrants that title to the property is as he has described. You would buy title insurance in case some defect in title was discovered after the transfer of ownership. Recording the deed is notice to the world that you are the new owner.

You must know how to correctly fill out such basic documents as purchase offers, deeds, options, leases and rental agreements. Many of those documents have been recorded in your county and you can see many expert examples by viewing your County Recorders files.

If you have borrowed money to buy the property the lender will record a mortgage or trust deed immediately after the Warranty deed has been recorded. This mortgage is a lien on the property and gives the lender power to foreclose if you violate terms of the loan, like stop making payments.

Step Two - Understand how to buy real estate:

Most sellers want to sell their property for full price and all cash. Investors generally want to buy at a discount and delay paying for as long as possible. To do that you must understand the many techniques an investor can use to satisfy the needs of the seller.

You only make good deals if the seller is urgently motivated to sell. Perhaps he has lost a job, been transferred, has a drug problem, is facing divorce, bought more house than he could afford… or a variety of other reasons why he/she must get out from under those mortgage payments.

You can control real estate with leases, options, subject to techniques and a host of other “creative ideas”. To be successful you must understand which technique to use in which situation. You just talk to the seller until you learn what he/she will accept.

Step Three - You must uncover a steady stream of motivated sellers:

They are always plenty of people who must sell their homes and sell them in a hurry. The trick is to find them. Since most people will so “no” to any offer but all cash, you need to be constantly on the search those motivated home owners.

My experience is that most new investors don’t fail at investing… they fail at marketing. Marketing is how you sell you skill as an investor and find enough motivated sellers to keep the cash rolling in.

You can use billboards, flyers, telephone calls, door to door canvassing, bandit signs, newspaper ads, Web sites, direct mail… or any combination. If you don’t use good marketing every week of the year your chances of becoming a successful investors are minimal.

Good marketing is the secret. You can be expert at every creative buying technique in the book. If you can’t locate motivated sellers every week you just won’t be able to buy houses.

Time and again we’ve seen people with just basic knowledge of one or two buying techniques become very successful, because they are unrelenting in their search for motivated sellers. Perseverance and stamina can work wonders.

My choice is to mail postcards, because they are inexpensive to prepare and send. You can read more about my postcard system at http://digbig.com/4cjxp

Step four - Always have an exit strategy before you buy:

Before buying an investment property you must carefully evaluate the potential for profit. One of the keys to your evaluation will be to determine what you will do with the property if you buy it.

Included in the many way to profit are:

1. Place it in your “buy & hold” inventory if it will produce profitable rental income.
2. Place it in your “buy & hold” inventory if it will produce break-even cash flow and you expect it to increase in value by 8% to 15% or more per year.
3. You can assign the purchase contract to another investor for a one time cash payment.
4. You can buy the property and immediately sell it to a retail buyer and cash-out.
5. You can exchange it for a more desirable property.
6. Refinance cash out and use the money for the down payment on another property.
7. Etc…

Finally

Now you can visualize the four basic steps in real estate investing. You’ll never know all there is to know about every step. Just get started and add to your knowledge as you go along. Remember, all it takes to be successful is perseverance and stamina!

ABOUT THE AUTHOR

Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.

Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.

Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.

Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.