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