In today’s post, I want to focus on something that you will need to do time and time again as a real estate investor: make offers on properties. Before you can even begin to buy your first investment property, you have to decide on an area to invest in. You can’t be an expert on the whole city when you are just starting out. Once you have decided on an area, you will have to get a little bit creative to learn all of the things you need to know.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Getting To Know Your “Farm Area”
First and foremost when buying investment property, you need to get to know the areas where you will be making offers. This is called your “farm area”, and it is the area where you want to concentrate your marketing efforts.
A lot of this information is available on the MLS (Multiple Listing Service). By doing a search of all the homes that have sold in that area during a specific time period, you can get an idea of what homes are selling for.
Another good way to find out the values of homes in any particular neighborhood is to get in your car every Sunday and hit all of the open houses in your farm area. When I first opened my home inspection company that is exactly what I did. I took a coffee mug full of “goodies” and gave it to the agent at the open house. I had things like a pen and a pad of paper with my company name and logo on it, my business card, some chocolate, a few mints, and a tea bag to make a cup of tea in my mug. When I arrived I introduced myself and spent a short time chatting with the agents. In the early years this really helped me to build my business.
Working With Real Estate Agents
You can use this same principal of going to open houses to meet with real estate agents when buying investment property. Not only does it help familiarize you with the neighborhood, but it will help you to determine what homes are selling for in your target area. Realtors that work in your target farm area are a valuable source of information.
After you have introduced yourself, tell the agent upfront that you are an investor and you are doing research on that particular area. Let them know that you would like to be added to their list of investor buyers, and if they come across a house that might meet your specifications you would really appreciate a call.
Agents have “pocket listings” all the time. “Pocket listings” are houses that the agent has just put under contract that have not even made it onto the MLS. In most areas there will be a specific time period during which the house must be entered into the MLS. This is 24 hours after the listing is received in my area. Whatever this requirement is, there will usually be a short period of time where the agent can simply call his or her “list” and try to get it sold. Not only does this save the agent a lot of headaches, but they will get to keep the entire commission. Having agents on your team that will let you know about “pocket listings” helps to feed your “buying machine” It’s a win-win for everyone.
It’s not unusual for Realtors to get calls from past clients about houses that are in need of a lot of repairs or that are just plain “junkers”. When their past client says, “I have a run-down rental in a bad part of town that I have to unload”, the agent just can’t say no to this person. But, they really don’t want to invest a lot of time and advertising dollars on this house to get it sold. If they have a list of investors that they can call and quickly sell those types of houses to, once again it’s a win-win for everyone. You get a great deal and they look good to their seller!
Working with Landlords
Another thing I like to do when buying investment property and I want to get a general idea of the market in that particular area is to call on houses for rent. It’s invaluable to a real estate investor to know what a house will rent for in a particular area. It’s also critical to know when making your offer. If you are planning to buy a rental house and your estimated costs will be $700.00 dollars per month, knowing that the typical house in that area will only rent for $600.00 per month just saved you from making what could be a costly mistake. It’s pretty easy to call a few landlords and see what the average house rents for in your farm area. Take advantage of all the tools available to you that will help you make a sound decision when buying any piece of investment property whether it is to flip or hold as a rental unit.
Next week we will talk about where you find houses to make offers on.
Photo: J Ridgeway