Part 2:
Four Factors to Look for in a Real Estate Investing Deal

The key to making money in real estate investing is finding good deals.  Of course, we make that a lot easier by bringing great deals to you on a regular basis.  But when you’re in the business of buying and selling houses for a profit, you have to get good at recognizing the properties that are good deals and those you should just walk away from.

In the beginning, it’ll take some time and analysis to decide if a deal is worth is or not.  As you become more experienced, weeding out the bad deals will be like a sixth sense.  There are some key things that you should look for in determining a good real estate investing deal.

Property Value.  How much the property is worth plays a big role in real estate transactions.  It influences both your purchase price and subsequent sale price.  Unless you know the property value of the home, you can’t effectively negotiate your purchase price.  One of the ways to determine property value is to look up the final selling price of similar properties in the area that have recently been sold.

These are often called "comps" or comparable sales.  If you can find that there's a house with similar square footage, bedrooms and baths nearby, preferably in the same neighborhood, that just sold for "X" number of dollars, it'll give you a good idea of what you might be able to sell your potential investment property for.

One way to find comps is by using websites that will give you this information.  There are quite a few out there.  Just doing a Google search will probably produce some good results.  Some sites will charge for them, but some are free.  You can get some decent data from the free ones, but you could try a paid one as a trial and compare the information you get and see if it's better than what you can get for free.  If so, it might be worth it.

One useful website is Zillow.com.  The amount of information it will show you will vary from area to area, and for some rural areas they may not have any information on a property.  But when they do, it's often very helpfu.  You can usually see tax assessment values and what properties were last sold for.

Asking Price.  How much does the seller want you to pay for the property?  Ideally, this number is below the property value.  Otherwise, it’ll obviously be a little harder to make a profit when you sell the property.  Even if the property is listed for a price that's higher than you're willing to pay, there’s always the possibility of negotiating a lower price.

Of course, with wholesale deals, the negotiating is usually already taken care of for you.  But if you're finding deals on your own too, the asking price is an important factor to look at for obvious reasons.

Work To Make the Property Saleable.  Some houses you purchase may not be in a condition that’s conducive to selling.  If you have to spend so much money in repairs that you can’t make a profit, then the property isn’t a good real estate investing deal.  You can hire a bonded contractor to look over the property and give you an idea of what needs to be fixed and what it'll cost.  (Hint: hire your own contractor rather than using one referred by the seller or his agent.)

Be sure to figure out the total amount you'll have to put into it to fix it up and always aim high.  And add in some extra as a cushion.  It's inevitable that from time to time you're going to run into unexpected expenses, or maybe the materials go up in price or it takes the contractor more time or work than they estimated and the price goes up.

And while the property is being fixed up, it's probably sitting vacant.  That usually means you're having to make the payments on it, as well as other expenses like taxes and insurance, and maybe even lawn care and things like that.  These expenses are often referred to as "holding costs".  So be sure to factor those in when you're figuring up the expenses for fixing up a house.  And again, always aim high and allow for longer than you think it'll really take because you never know when something unexpected might come up and make things take longer.

It's better to estimate the expenses being higher than they really are and walking away with some extra profit than to estimate too low and end up losing money on a deal.  If you do your homework and know what you're getting into and give yourself a little room for error, you'll usually be fine.

State of the Buyer’s Market.  Are people buying properties in the area of your deal?  If sales are slow in that area, the real estate investing deal might not be a good one, unless you can offer something that other properties are not.

If conventional buying is slow, consider the possibility of doing a lease option and market the property as "rent-to-own".  There are usually lots of people out there who want to buy but can't get financed for various reasons.  By offering a lease option, you may find a goldmine of buyers even in a slow market.

If you're not familiar with the market or don't know what kind of response you'll get from "rent-to-own" buyers, try doing a little marketing there first and see what the response is.  If it's good, you'll have a list of buyers lined up and waiting for your property, which is always a good thing.

You can get a website that will help you automate this process of building a list of buyers by clicking here.

When you’re assessing real estate investing deals, these are some key factors you should keep in mind.  Use each of these factors to evaluate the deal and make a profitable decision.

Sincerely,

Todd Heitner

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