Today I want to talk about something I see as a huge problem for everyone just starting out in the real estate investing business. Too many people don’t understand what information they need to get from the seller in order to be successful in this business.
It took me years to understand that sellers only have one house to sell, but you have THOUSANDS of houses to look at and purchase. That seller wants to get as much as they can, while you as the investor want to get that same property on the best terms you can. You’re not adversaries, but your goals are definitely different.
Beginner investors often only look at what the seller is asking. Sellers have an emotional connection to their properties that you don’t. They may want $1 million, but that does not guarantee that they’ll get it.
These newer investors also believe that they have to find the money to purchase the property, also known as “sellers only want cash”. This is one of the biggest lies in the industry. No seller wants cash; they want what the cash can DO for them. If you can stay away from institutional financing, do it!
If you don’t know what your costs are and are depending on the seller to finalize your numbers, you’re in big trouble. You need to understand down to the last penny what the property is bringing in and what it’s expenses entail.
And one of the most important issues you’ll come across is: What exactly are you looking at? What is the best and highest use of the property? Many investors don’t understand that there are factors outside the home that determine what the property’s best function will be. The neighborhood, the local job market, etc., all of these will influence how you can make money from your property.
Make sure you understand what kind of neighborhood the property is in. Check out the crime, street quality, and school districts in the neighborhood. That will indicate whether a family is going to be happy living in this area, which will also help you determine if the property will be a resale or rental.
You can’t factor the desirability and potential profits of a property based simply on the seller’s asking price. If you do, you’ll never have the entire story, and it’s going to cost you a lot more than you’re willing to pay in the long run.
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