|
Author: Chris Anderson, PhD Article source: http://usa-real-estate-guide.info/. Used with author's permission.
Step 1 is always to determine the fair market value(FMV). As a real estate investor, you can always buy properties at the FMV. My question is why would anybody want to do that? Through careful selection, you can always find properties that are priced below FMV, regardless if they are existing or if they are a preconstruction project. The best way to determine FMV is to work with someone already familiar with the area or determine yourself through local websites showing recent sales histories.
Step 2 is to then determine the market trend for the area for which there are two critical pieces: 1) is the average price increasing AND 2) is the volume of sales increasing. If both are moving in your favor, then you have the comfort of knowing that the right trend is in place to keep prices moving forward. In stock market investing, there is the saying that the trend is your friend and traders frequently observe price and volume data to confirm the trend. If a hotly priced real estate market shows signs of dropping in volume, be very careful.
Step 3 is to learn about supply, especially in the preconstruction marketplace. In some areas, there are very few projects on the books and in others, there are 15,000+ units expected to emerge within 1 zipcode, in 1 year. Same is true for investing in houses. In you are competing with a bunch of new houses that are coming on-line, then rapid price escalation may be limited. For most savvy investors, they like to see lots of demand with very little supply which is nothing more than common sense.
Step 4 is to make your OWN opinions of the macro conditions of the local and regional marketplace. So, for example, if you are a strong believer that real estate is overvalued in the target area, why would you ever consider investing? On the other hand, if you believe that market forces will continue to escalate in the market, then why would you not be actively looking? As an example, some people believe that the graying of America is just now starting to drive people to warm, more attractive climates. Even though property values are high in these areas right now, are we going to see 20+ years of additional migration to them? You have to decide for yourself because we won't know the answer for another 20 years!
Step 5 is one of the most important risk management tools available to the investor in real estate. Each property has typically an inherent rate at which it can be rented, even if that is not your intent. By looking at rental rates, relative to the amount of principle, interest, taxes, and insurance (PITI) that you will have to pay, then you can understand the amount of cashflow that may be required to support the property. If your objective is to produce cashflow, then you need to be cashflow positive very quickly. If your objective is capital gains and the cashflow is negative, then you now understand what you may have to support on a monthly basis if things don't work out.
Deferred maintenance then becomes our Step 6. For an existing property, how much maintenance has the previous owner neglected that you will need to catch up? Be careful here since this can be one of the major places to get nasty surprises.
And now I saved the best for last: Step 7 is to determine your own personal risk tolerance. Some new investors look at a deal and only see the positive. This is a huge mistake. EVERY REAL INVESTOR I KNOW HAS LOST MONEY IN A DEAL but they gladly will do more. Why? They understand their risk's going in, they understand how to limit their downside, and the gains are much larger than the risks they are taking. If you were standing beside them and saw what they saw, you would gladly take the risk as well and rapidly ignore any small losses that you experience.
Hopefully this has given you a good start at learning how to analyze a potential opportunity. Obviously each of these steps requires additional work or training but they are what separate the new investor from the seasoned, battle tested veterans.
As part of a new web site that we just launched, http://www.GetPreconstructionDeals.com, I get repeated requests asking if a particular deal is good or not. While we can't answer this for individual projects, we can certainly look at what HAS to get done by the investor to dramatically increase the odds of a successful transaction. Chris Anderson is a leading authority on preconstruction real estate investing. Get his 4 day e-mail course and a 33 minute video free today! Visit http://www.GetPreconstructionProfit.com & http://www.GetPreconstructionDeals.com.
In addition, Dr. Anderson is the on-line training coordinator at the Van Tharp Institute, a group dedicated to providing world class training for investors and traders.
How To Choose The Perfect Necklace - One that Makes You Look Your Sexiest
That perfect necklace transforms a plain jane look into a stunning look instantly. Here's how you can find what is perfect for you.
Interior Design Psychology
Does your home make you feel happy, energized, and at the same time bring you peace? Or, do you feel unhappy, depressed, or distressed in your home, and you don...
A Guide to Patio Awnings
Patio awnings are one way to increase the enjoyment of your patio experience. Patio awnings provide shelter from summer heat and provide much-needed shade on th...
Bad is the Opposite of Good... Is It? Not with Bad Debt Personal Loans
Bad debt personal loans are meant for people who have foreclosures, bankruptcies and charge-offs defaults, arrears, bankruptcy, closure, charge offs or any othe...
Koffe Anan Must Leave UN
Unfortunately due to the Oil for Food Scandal Koffe Anan's public World Image is so tainted that he has become an ineffective spokesman for the United Nations.
Choosing the Right Debt Management Service
Regardless of age many consumers are guilty of committing financial suicide. For some people juggling bills and robbing Peter to pay Paul is a vicious and endle...
5 Advertising Mistakes Most Small Businesses Make
Effective advertising is an investment in your business. Ineffective advertising is a liability and a waste of money. Here are the top 5 things to avoid making ...
IRS Adjusts Revenue Procedure on Mileage
Recent gas price trends have impacted the standard mileage rate allowed by the IRS. Small business owners should be aware of the latest adjustments and take ful...
Become An Affiliate Champion: 10 Tips
Affiliates programs are one of the easiest ways to make money in the internet. Small fortunes have been made for smart people who have taken advantage of this p...
Home Equity Loans 101
A secured home loan differs from an unsecured loan in that the secured loan borrows against one's home as collateral, thereby reducing the risk to the lender.
What is Mystery Shopping, and Can You Really Get Paid to Shop?
Mystery shoppers visit businesses "disguised as normal customers," and do the things other customers do—ask questions, make a purchase, make a return—but with a...
Costa Rica: Land of Natural Wonders
Costa Rica is a small country - just 75 mi/120 km separates the Pacific Ocean from the Caribbean Sea at the narrowest spot - Costa Rica still has some of the ...
Carbohydrates: Why Size Matters
If I collected a dime for each time I've seen or heard the word "carbohydrate" - or picked up a book on the subject, for that matter - I'd be a wealthy woman. A...
Digital Photos: Printing on a Budget
We are a two printer family. Yes, we have the "good printer" and the "little printer." The "little printer" is the budget printer and the subject of this artic...
How to Get Your Blog Noticed Quickly and Widely
These 17 Tips for Marketing Your Blog will get your blog promoted widely and quickly. You'll also get listed in MSN and Yahoo before you know it.
Wealth Catchers: Discover Wealth and Prosperity with the Angels of Abundance
Did you ever know somebody who easily accumulates wealth? If it rained money and you each put pots out to catch it, would yours be likely to hold the half inch...
Spring Cleaning with Nontoxic Cleaners
Spring cleaning is an annual revitalization of your home. Using safe,
nontoxic cleaners and making cleaning simpler throughout the year.
When A Two-Salary Income Fails
While this may not apply to everyone, you may find that a second salary brings in substantially less than you thought it would. In the beginning, Rachael though...
Dietary Weapons of Mass Distraction (WMD)
As hoards of low-carb proponents invade the nutritional landscape, the increasingly tired low-fat guard seems to be giving way before their steady march and dru...
Anthony Robbins 12 Reasons Why People Dont Get Wealthy
Anthony Robbins is one of the top success coaches in the world, having coached star sports players, heads of states and Fortune 500 executives. In his Get The E...
Restructure Your Debt Before Buying a Home
The temptation of getting into the runaway housing market is understandable. However, if you are in debt, it's important to make sure you restructure it and con...
Epic Treadmills – Good Value Or Not?
Epic treadmills, including the epic t60, are well known for good value at the cheaper end of the treadmill market. But are they good value?
Caretaking Is a Win-Win Situation
Many individuals are making a radical change in their lives
and becoming full time caretakers of property, estates, farms,
ranches, or even nature preserves. ...
VigRx Pills - How Natural Penis Enhancement Pills Work
Years ago, men in our culture pretty much accepted whatever they were dealt in the sexual department, and they certainly didn't talk about their problems or con...
|
Print this page