| One consistent fact about investing in real | | | | title insurance and other types of insurance, |
| estate is that you determine your profit when | | | | depending on whether you plan to live in the |
| you buy a property. You goal is to buy low | | | | property or not. Finally, there could be |
| and sell high. If you pay too much at the | | | | utility costs and other unexpected repair |
| beginning, you've stolen profits from | | | | costs. |
| yourself. Never buy a property at market | | | | |
| value, unless you have no desire to profit. | | | | 3: Check the Feasibility Of the Project |
| There are five ways to make sure that you | | | | |
| avoid this mistake. | | | | Once you've determined property values in the |
| | | | neighborhood, you're ready to evaluate the |
| 1: Know the property values | | | | feasibility of your project. Start with the |
| | | | current value of the unimproved property. Add |
| You have to research and understand the | | | | your renovation budget, other project costs |
| neighborhood property values. This step is | | | | and estimated interest to get a total project |
| critical for your success. You need to | | | | costs. Then add your minimum profit to that. |
| actually visit any property you're | | | | If the total you calculate is more than |
| considering and compare it to other | | | | improved homes sell for in that neighborhood, |
| properties in the neighborhood. Online | | | | the project isn't feasible. Walk away. |
| research can't give you a feel for the | | | | |
| neighborhood or the property. | | | | 4: Calculate the Maximum Purchase Price |
| | | | |
| Keep a detailed record of selling prices in | | | | Figuring out the maximum amount you should |
| the neighborhood for run-down and improved | | | | pay for the property works the other way. |
| homes. You can gather this information from | | | | Start with the final selling price you think |
| local real estate brokers, the county clerk's | | | | you can get in that neighborhood. Deduct your |
| office, the tax assessor's office and from | | | | profit margin, as well as selling costs, |
| real estate appraisers. Collecting and | | | | renovation costs, and the other project costs |
| analyzing this kind of information is often | | | | listed above. The figure you end up with is |
| called a comparative market analysis, or CMA. | | | | the maximum amount you should be prepared to |
| | | | pay. |
| 2: Estimate your project costs | | | | |
| | | | 5: Negotiate Hard But Fair |
| Once you have information on actual property | | | | |
| values, you can start to estimate how much | | | | Once it's time to purchase, you have all the |
| you can spend and still make your desired | | | | knowledge you need to negotiate well. Your |
| profit. There are several types of costs you | | | | knowledge puts you in a position of strength. |
| should consider. Acquisition costs include | | | | As you meet with the seller, strike a balance |
| the purchase price, taxes and origination | | | | between sensitivity and professionalism. |
| fees. Get estimates from several lenders and | | | | Negotiation is an art and it may take some |
| compare. Don't get surprised by extra closing | | | | time for you to be comfortable with it. But |
| costs. | | | | the steps above have given you the financial |
| | | | boundaries. It should be clear to you when |
| Repair costs include everything you'll need | | | | it's time to strike a deal and when it's time |
| to improve the condition of the property. | | | | to walk away. |
| This is where your visit to the property | | | | |
| really pays off. You'll have a better idea | | | | The key to your real estate investment profit |
| what repairs are needed. You should also get | | | | is in the purchase price. Everything about |
| a few contractors to provide estimates for | | | | your project hinges on this critical number. |
| some of the repairs. | | | | Research into your target neighborhood and |
| | | | realistic estimation of costs will give you |
| Other possible costs to consider include | | | | the knowledge you need to negotiate a |
| inspections, a title search, a survey and a | | | | profitable purchase price. |
| certificate of occupancy. You may also need | | | | |