Back to the Basics: Buying Right!
With the housing market still a little unstable and adjusting to the current economy of the country, grounded investing principles are needed and are more important then ever. Over time, real estate investors have gone on to making their own tactics in making their investments. Some would buy properties at full retail value and make a profit by flipping the property. Others get stuck with properties they paid too much for and undervalued.
The simplest and most common advice to avoid predicaments such as these would be to go back to the basics of buying and investing right.
When someone comes to you and tells you that you should buy a particular house or property, the first thing you should ask that person is why that property would be a great investment. Even before that, you should have already formed your own perception of what a great investment is.
Many people perceive a great investment as something that would make them money in the future. There is a little problem with this perception and that is that an investment that may generate some profit has the probability that it also might not. Ideally, if you’re going to invest in something, you make sure that you will generate a profit. And to make this happens, you have to redefine your perception of a great investment.
A great investment, to many successful real estate investors, is something that will be able to generate profit at the present time that you made that investment. We all know what we are looking for in every investment, and that is profit and money. Having these two in mind, you cannot just stick to an investment that may or may not give you these.
How do you know if a deal is a great investment? The answer is simply to go back to the basics.
Going Back To the Real Estate Basics
The basics of real estate investing, like any other basic studies, is actually simple. All you need to do is follow three steps:
- Make sure to know the value of the property. It could be the appraisal value or the after repair value or the market value. Learn the recent appraisals that the sellers can give.
- Make an estimate of the expenditures you’re going to make for the repairs.
- Decide on how much you’re willing to invest. Decide on how much you think a property is worth and don’t just take into account the seller’s price or the banker’s. It’s your investment, after all.
Once you’ve finished setting up your limits and considerations, it is time to ask yourself two questions:
- If I pay cash on this deal, what is the most I will pay?
- If I can buy the property by keeping the existing financing in place, what is the most I will pay?
These two questions will certainly keep you out of financial loss and enable you to make a profit. It would then be up to you how you negotiate and play the deal. Always stick to your limits and maximums.
These are the basics — simple yet effective.
