How to Make the Most From Your Next Real Estate Deal?
Real estate deal making is all about getting the investment advantage by finding great locations before anybody else…in other words the right location is crucial to ensure strong cash flow and capital growth.
Real estate is more like a medium to long term investment rather than short…although it depends on your preferred strategy (ie, quick cosmetic renovations or subdivisions).
Real estate deal making tips and tricks to help you maximize your results.
First off most people buy based on their emotions. That’s exactly what you don’t want to do because emotions cloud judgment and cause you to lose money.
Always buy using logic because the best sellers are motivated sellers. You want to only be bidding on properties which have been on the market for six or more months. These sellers are either stubborn when it comes to negotiating or they are desperate to sell.
Views are everything, right? How many days does a property sit on the market for a serious buyer to snap up? Would it sold faster and for a lot more money if the property had a good view? The property would of cost more money, would it sell at a higher price?
Why buy a property with a view? Because these types of properties are more desirable…
Plan for worse case scenario: Great view and property was on the market for a very long time because the problem was it was priced at $2,000,000, which didn’t make sense in that market.
Lets crunch some numbers: 25% down for mortgage payment at $11,188 a month (includes property tax, home owner insurance). If you rented unit at market value of $7,000 a month that means you’d have a negative rental disparity of $4,188 a month.
In essence, the property would be a bad buy because it wouldn’t offer positive cash flow as a rental property.
Know your market: Before you buy, make sure you know your buyer, target market you could ideally sell.
For example, if you bought the above $2,000,000 unit, you would target a buyer under 40. The problem is, not too many people under 40 would afford to buy a $2,000,000 unit, which makes it risky.
Optimize for returns: Typically you make money on the buy as no one buys a home for more than it is worth, which means if you buy for less than property’s market value, you’ll be making money from day one.
Not only should you aim for a good deal, you want to buy in a strong market which is growing, has a ton of job openings and doesn’t have lots of supply/inventory.
Schools: Look at what kind of a school district is near because other people do. Don’t take these aspects for granted because homes with these types of desirable attributes usually sell fast. Homes with good school districts usually have a lower crime rate.
Now you know how to be logical, you need to know real estate deal makings tricks of the trade to get the best deals.
Real estate deal making cardinal rule is to never work with rookie real estate agents because if you want to make money in real estate, you need to find a good real estate agent:
- Real estate agents experienced and successful, tend to be most well connected and learn about deals before anyone else
- Real estate agents good at numbers because if they can understand market trends and what is considered a bargain, you are more likely to make money…
- Real estate agents won’t give you answers when they are unsure, so don’t ask what a property is worth, they’ll probably give you an uneducated answer. You need to know the type of property to fits your goal and do your research to find other comparables.
- Real estate agent which is hungry, you don’t want an agent which takes you to all of the open houses. You want unlisted deals which aren’t on the market yet…
Now that you know what to look for in a realtor, you need to retrain your brain when it comes to buying real estate. Real estate deal making in context to when you’re submitting offers, get into the habit of not using round numbers, its better to use random numbers.
For example: submitting an offer for $500,000 vs $490,497 because you’re using a random number it stands out and usually gives the impression you have set a limit on the amount of money to invest, which typically makes the deal negotiable.
Close deal fast: If you can get your foot down and close fast, you tend to get better deals first. If you can’t offer an all-cash deal, start working with your mortgage broker on your loan refinancing or get pre-approved, which should help.
Never show interest: The more interest your show, the harder it is going to be when negotiating. Let them know you’re looking at other properties and if they offer a better deal, you’ll go with them.
Real estate deal making revolves around the numbers stacking up, so how do you know which area or suburb to focus on?
Real estate deal making means knowing your budget: In reality for most buyers budget dictates which areas you can afford to live in or invest, right?
The most effective strategy is to understand your budget in context to meeting with a mortgage broker or lender to get their approval so they know your budget before you begin your search…does that make sense?
Real estate deal making means focusing your options: Okay your budget is locked down, you’re in a stronger position to choose from a short-listed number of suburbs where you can purchase property within a price range.
Next step is to start calling real estate agents in the area of focus to see what you can buy within the strategy criteria and price range. You need to be clear and concise about the deals you need in terms of en value and profit percentage.
Also you want to research which suburbs nearby are lagging behind in growth which offers the type of property you want to buy.
Real estate deal making means mapping out your suburb: Most suburbs have a preferred pocket. To understand a suburb better, take a road map down to the local estate agent’s office and ask them to map out with a highlighter different pockets in order of most popular.
In time, the suburb as a whole gains added value and the less sought after pockets become more popular, as the next preferred pockets rise rapidly in price. The goal could be if you can get into a better pocket up front, you should enjoy faster capital growth.
Explore neighbouring suburbs: Neighbouring suburbs can offer great options for homebuyers and property investors.
For example, if you analyse a suburb and find you can’t get properties you want because numbers do not stack up for a profitable deal, shoot for either side of suburb until you find properties which fits your investment strategy or criteria offering qualities/features.
Follow infrastructure: Infrastructure drives property prices, which is why experienced investors follow infrastructure trends. The EastLink did a lot to boost prices in areas like Seaford and Ringwood in Melbourne back in 2008.
Take a closer look and extensions to Mornington, which commenced construction late 2010 and is already having an impact on areas not usually favoured like Frankston North, Karingal and Carrum Downs. Look at where government is upgrading infrastructure, as it is a sure sign of an up and coming “hot spot”.
Lifestyle attractions: Areas which offer lifestyle attractions are favoured by buyers and renters compared with other suburbs which offer fewer amenities. Walking and bicycle tracks, family parks, bushland, creeks, beaches and small community villages all offer unique point of differences.
Water and city views: Enjoying water or CBD views is a major plus for any suburb. In Seaford, Victoria, for example, buying on the beachside of freeway commands an additional $100,000 more than similar properties on eastern side of the freeway.
The gap between beachside and non-beachside properties is increasing each year, making it even more unaffordable for many new homebuyers and investors to get into beachside lifestyle and property market.
Hang out where the locals connect: When investigating a new area, ask the real estate agent why people like living here. Next step is to visit the suburb’s most popular spots, whether its a local family friendly picnic area or coffee spot to observe the gaps and types of people which hang out there.
Transport is important: Regardless of whether you live in the inner city or outer areas, transport is important. The more transport options available in a suburb, the more valuable a suburb becomes over time.
Easy access to major roads and freeways is a major plus for outer suburbs, because the easier it is to travel to CBD or other major employment hubs, you know the better the suburb will be for most buyers.
Forget about the negatives: There are many suburbs across every state which locals will caution against buying. Sometimes a fresh set of eyes without knowing about a suburb’s ‘stigma’ can work in your favour. Why?
Because you’re looking at the suburb based on fundamental merits which make a suburb valuable. Stigmas always are forgotten in time and perhaps you’ll profit buying into the suburb while it was still cheap…make sense?