Im a newbie investor no deals under my belt still just learning. I want to start off my journey in investing rentals .What are some major DO-NOTS when it comes to real estate in detail and examples would be great as well.
Bidding wars! Don’t get caught up. You’re in it to make money. I believe if it’s not meant to be then it’s not. Don’t get too emotionally involved for a property if the numbers don’t make sense for you.
@Nadia O. Appreciate the feedback. So how do you go about negotiations
We never ever bought over asking price. We always negotiate either $10-15k lower depending on the market of course. My rental was a short sale. I put in my bid $30k below asking price & I got it. It took 6 months to close but it was well worth it. We only purchased fixer upper. Many people stay away from them. Too much work / headache + lots of extra cash depending on the renovation.
Recently we got caught up on bidding wars. We did put offer over asking $10k+ & still didn’t get the property. We backed away since then. We want to purchase another rental but like I mentioned the numbers have to be good...good enough for us to survive without renters.
@Joe Villeneuve thanks for the feedback. what’s bad about putting in to much?
Total Property Cost and REI Cost are not the same unless you pay 100% cash. Total cost includes the down payment, the loan balance and interest. REI cost only includes what comes out the REI's pocket...in cash. The higher the DP, the more the property cost the investor.
This is true based on the property having positive CF. If the property has negative CF, then add the negative CF to the cost of the property to the REI.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
5y
Sort of along the same lines as what @Joe Villeneuve mentioned, but the main metric I look at when investing is, if the investment performs like I am projecting how long will it take me to get the cash I invested out fully.
Sort of along the same lines as what @Joe Villeneuve mentioned, but the main metric I look at when investing is, if the investment performs like I am projecting how long will it take me to get the cash I invested out fully.
^^^^^^^^^^^^^^^^^^^^^^^...* (That was a drum roll and cymbal crash)...great answer!
@Nadia O. Appreciate the feedback. So how do you go about negotiations
We never ever bought over asking price. We always negotiate either $10-15k lower depending on the market of course. My rental was a short sale. I put in my bid $30k below asking price & I got it. It took 6 months to close but it was well worth it. We only purchased fixer upper. Many people stay away from them. Too much work / headache + lots of extra cash depending on the renovation.
Recently we got caught up on bidding wars. We did put offer over asking $10k+ & still didn’t get the property. We backed away since then. We want to purchase another rental but like I mentioned the numbers have to be good...good enough for us to survive without renters.
This strategy works...for many...which is part of the problem. This also means there is a lot of competition for these properties.
I'll still do this, but I find I can make more money now and down the road even if I offer more than the AP. I focus on what "my" cost is instead of what the "total cost" would be. My cost (as long as the property has positive CF) is only what comes out of my pocket in the form of cash. The faster I can recover my cost, also in the form of cash, the faster I start making a profit...and the faster I have nothing left at risk.
Investor · USA · Member since 2015 · 325 posts · 447 votes
5y
@Antony Charlier
What to avoid: Overpaying for Property. If you overpay you are always stuck. The costs to sell is around 5-10%.
Monthly Cashflow is nice but not the most important thing in investing. The objective should be to make money, that looks different in a lot of markets.
Just want to point out that Joe means he has no cash at risk....there is still risk Risk of your credit being dinged if you were not able to make loan payments, risk pf being sued by a slip and fall (or whatever), etc etc there is always risk in real estate
Just want to point out that Joe means he has no cash at risk....there is still risk Risk of your credit being dinged if you were not able to make loan payments, risk pf being sued by a slip and fall (or whatever), etc etc there is always risk in real estate
Credit yes, but that can be repaired and isn't a requirement to invest. The slip an fall isn't at risk since there isn't anything of value to be gained by a lawsuit. If you have 100% equity, you have 100% at rusk from a lawsuit. As your equity goes down, there's nothing left to take since the loan must be paid off first.
New York City, NY · Member since 2019 · 52 posts · 38 votes
5y
Good advice here. I would add - always compare lenders and shop around for a good rate. It can save you thousands. When I bought my first multifamily I applied with more than 7 lenders. My loan rate went from 3.8% to 2.75%. Just went into contract on another property and applied with 4 lenders. My rate went from 5% to 4.625%.
Your loan interest rate eats into your profit so it’s worth the trouble to shop around and compare lenders. Always have the documents you need to apply quickly accessible so you can throw everything at a lender quickly and get a quick turn-around.