From the outside of an industry, especially one like real estate investing, it can seem as if those who have made a name for themselves must have some kind of secret information. After all, they land on the right side of the best deals, have a great portfolio, and seem to know everything about so many markets. In reality, there are no secrets, just a combination of a great self-education, negotiation skills, and informed financial decision making.
In real estate, knowledge is power
A sentiment that has been said countless times on this blog, research and an education about prospective markets is key to being successful in real estate. Successful investors never stop researching and learning about the market they’re interested in, and such research isn’t limited to financial analytics and factors. They look into the public school system and its rating, the local crime rate, and job statistics. In short, research an area like a tenant would. Considering the whole picture can help you to determine whether an investment will generate the kind of profit you’re looking for.
Success relies on negotiation skills
Negotiation is an art form that can take years to perform well. Successful investors understand that deals are a sort of balancing act: you want to secure the deal at a cost you can afford while making the seller feel they got the most out of you they possibly could. There are a few ways this is performed successfully:
- Know the highest bid you’re capable of offering before going into negotiations. If you start high, it’s easy for the deal to continue slipping upwards. At that point, you may end up making justifications for a steeper price and walk away with a deal that’s not very good for you. Starting lower and confidently progressing towards your cap makes the seller feel like they were able to get more than they expected from you.
- Use your market research and use it as leverage. When you go to make an offer, discuss similar properties that have recently sold for less than what your seller is asking for. Did that property recently have renovations? What were the results of the inspection? Anything you can use for comparison’s sake may help you get a better deal.
- Do some research on the seller. Seller’s often have non-financial reasons for selling a property. If you can find them, you may be able to use it to your advantage. For instance, sellers who have recently experienced divorce, are facing bankruptcy, or are moving may want to sell a property quickly. If within your means, you can have a leg up against other bidders by offering to finish the deal quickly.
Combined with those three techniques, hands down the most important factor of negotiating good deals is confidence. If you approach a deal with skepticism or resistance, the seller will recognize it and you may not get the best possible deal.
Crunch a property’s prospective numbers
Sure, a property may seem like a great investment, but without seeing all the numbers in front of you, you may just be sinking your money into a pit. This is especially true when it comes to investing in multi-family properties, which can be very expensive up front so you’ll need to make sure the investment will be profitable in the long run. Successful investors rely a lot on mathematical formulas and a series of numbers, such as projected rental income, estimated mortgage payment, and expected repair costs, among other possible expenses. Many investors follow what the 1% rule. This rule recommends that if the monthly rental income is about 1% of the property’s price it will be able to generate profit.
There are no secrets to success when it comes to real estate investing. Success in real estate is a by-product of continuous self-education, a lot of trial and error, and the confidence to make predictions and take risks based on your research. Real estate knowledge can seem secretive, but it’s accessible to anyone who is eager enough to learn.