Do Most Real Estate Investors Really Know What a Good Deal Is?Posted on February 28, 2013 by
It amazes me how so many so called real estate investors who have been in the business for less than five years think they know enough about investing in profitable properties to be able to create a fortune. Think about this for a minute, if you have been an investor for 5 years or less the majority of your investing knowledge is based on trying to buy pretty houses, pay cash for them, or get institutional financing to fund your deals and at the same time believe you will eventually become wealthy using the plan you are currently using. If you got into the business when money was easy to get, your perception of what is a good deal is probably is not an accurate assumption.
Another important mistake beginning investors make is using dollars per square foot to determine the value of any property is not a prudent way to give you what any property is worth. Another reason I say investors who have been in the business less than 5 years is, almost everyone I meet who is trying to become a successful real estate investor think the only good deals are short-sale deals. In my opinion, this is failed, but constantly used way to buy property beginning investors use. Why you may be asking is investing in short-sale properties a failed plan? Here is some facts most potential short-sale investors don’t think about. First, if the investor needs fast money, short sales probably won’t be the answer to your needs. Most short-sale deals take months to close. Many take six to nine months to get through the short sale process.
Other newer investors want to be Wholesale investors. Being a wholesaler is not being an investor, believe it or not, you have a job you must continually repeat if you want to survive in the business. Let me ask you a question. If you had $100,000 or could borrow $100,000 and could buy a property worth $150,000, how many of you think this would be a good deal? I personally think that deal would stink and here is why. If I had $100,000, why would I put it all in one deal when I could divide that money into $5,000 increments and control twenty properties worth $150,000 if done correctly?
Here is another reason I don’t believe beginning investors would know a good deal even if it slapped them in the face. Let me ask you some questions…
You find a property worth $150,000 that is in great condition in a good neighborhood. Would you be interested in that deal? It is a 3 bedroom and 2 bath house, are you still interested in this property? The property will rent for $1,500 per month, would you still be interested in that deal?
The seller I asking $1,000,000 for the property. Are you still interested in the property?
Maybe not but, what if the seller would be willing to take $500 per month until paid in full and you could cash-flow that property with $500 of the $1,500 for the property expenses of the property leaving you $500 each month to put into your pocket. Now are you interested in buying that property? Remember, you must get either “Price” or “Terms” to make a good deal. You must think about only doing profitable deals. The price is less relevant when the terms of the deal allow you to profit handsomely month after month. It’s just common sense most beginning investors don’t have.
All of these questions are extremely important for every investor to answer if they plan to create wealth. Read my column each month and I will explain how you can become a seasoned investor in the shortest period of time. I will share with you what a seasoned investor knows and why they are successful regardless what the market conditions are month after month and year after year.