With a returned confidence in the market due to record low borrowing rates and prices trending upward, many people are turning to real estate investment once again to reach their financial goals. As a realtor it’s interesting to observe would-be investors as they watch the MLS and constantly lament that there are no deals out there. Many even become discouraged and abandon the goal all together.
From my perspective, the problem is that they want this red hot deal to just leap out of their iPad and say, "Buy me stupid, I represent the exact return you are after!” Experience shows it just doesn't work this way. In actual practice, whenever a home is priced so low that it represents obvious profit to the buying public, the competition for the property becomes so intense that it generates multiple offers, resulting in it going for more than it really should have anyway.
What people fail to realize is that, real estate being a commodity, has very little inherent profit built into it. Nearly all of the profits in a deal are created by skilled negotiations. Things like negotiating with sellers to sell for less, negotiating with contractors to renovate for less, negotiating with banks for better rates and terms, negotiating with tenants for premium rent or negotiating with future buyers for premium sale price.
A deal is what a person makes of it. With the right team in place and some uncommon sense, almost any home listed on the MLS could represent a substantial profit, provided you negotiated it to be so.
Many are content to use a very vanilla, buy and hold strategy, you don’t need to do much other than buy property, let the rent pay the mortgage off, and passively enjoy inflation doing its thing. Many ordinary folks have created multimillion dollar net worth doing just that. It just takes time. The kind of profit most investors I speak with are looking for the sexy profit, more of an instant gratification. We call this “walk in profit.” This takes a lot more finesse and perhaps more importantly, patience.
It is equally important to have a proven model that you can measure each property against to determine whether or not it makes financial sense, leaving nothing up to chance. The real estate investment network (R.E.I.N) just launched their new member site which has sophisticated online tools that you can use to analyze the viability of a property you are considering. As useful as this is, I have always found that having a couple quick-math short cuts you can use to give a property a pass or fail within 30 seconds has been the real key to being able to spot opportunity. The power lies in the simplicity.
So with that in mind, consider the opportunity that lay within the ordinary listing inventory, the aging inventory, the neglected inventory, the vacant inventory and the under developed inventory. In my experience, for every 10 sellers out there, there is one that would entertain a win/win deal that gets them what they want, be it a fast closing, long closing, or an “as is” sale, in exchange for a reduction in price to the point that it fits your predetermined investment model.
So in conclusion, knowing that the profits of any deal depend solely on your ability to negotiate, your mission becomes this. Be crystal clear on the kind of property or project you want, the exact price range and the neighbourhood. Once you have a clear picture of what you want, ask your real estate professional to create a custom search for you for this exact kind of property and from there it’s all in the negotiations!