3 Questions to Spot Good Real Estate Deals

Analysis paralysis: one of the biggest blocks of successful investing. That’s when you stumble into a good deal, then stop dead in your tracks. You worry about the decision but never do anything.

In my first six months of investing, I looked at hundreds of great deals and froze. How did I know it was a good deal? How did I know I could make money? If I made an offer, I was scared I might have gotten the deal…and then what?

To overcome analysis paralysis, (1) get lots of information and (2) make sure you have a really good deal (because even if it’s not as good as you think, you still have a margin of error to work with). If I told you the exact cards that will come out on the blackjack table, without a doubt, you would play them because you have information about what will happen. When you gather lots of meaningful information, this also can be true in real estate investing.

Information Gathering

Ask the following questions first. They will help you decide if you should make an offer:

1. What is the property worth today?
2. What repairs are needed and how much will they cost?
3. What can you get it for?

1. What is the property worth today?

To develop a successful real estate investing career, your job is to find deals and put them together. Your job is not to become an appraiser or a closing attorney or a management expert or a repairperson. Use professionals! How do realtors, appraisers, and banks determine what a property is worth? They look at comparable sales, usually three to five sales of similar property close by. Realize that the properties have to be similar for a true comparison.

Next, get a list of comparable sales and see the sales price of every property bought or sold (and when it sold) for the street you want information about. Also ask active professionals what the market is like. Whenever possible, get information in writing via fax, email, or letter. Put comparable sales lists and information in a folder for future reference.

2. What repairs does the property need?

You can find the cost of the repairs from two different sources: from the owner or the seller (most are truthful; a few are not) and from a good contractor who is licensed, bonded, and referred to you. Make sure that person is “referred” and that you get bids from more than one contractor, all recommended by respected realtors or other investors.

3. What can you get it for?

When sellers are motivated to move a property worth $100,000 and it does not need any repairs, they may say, “We’ll let you have it for $70,000.” (This is about 30 percent below market value. Rule of thumb: A good deal should be at least 20 percent below market.) Would that be a good deal? Yes. Now you can negotiate an even better deal and get a signed contract. That’s where you make money in real estate. By not negotiating, you may have potentially left a lot of money on the table.

Every property’s value is in the eyes of its beholder. If you own a lot of real estate and you are being sued, you might make a case that your property is not worth much and needs repairs. On the other hand, if you go to the bank to borrow money against the property, you’ll want it appraised as high as possible using the highest comparable sales. And when the tax assessor calls to figure out your new taxes for next year, you’ll say the rents are low, the buildings need work, and so on. Since property has different value depending on who is looking at it, make sure you talk to professionals active in the market who tell you honestly what people are paying for properties today. You can also determine market value by attracting an offer through a newspaper ad that includes details of the property. If the phone rings, people want what you offer. Likewise, if you want to see how much rent should be, run a For Rent ad and see if anybody calls. If no one calls, you don’t have much of a market.

Now Do Your Analysis

You have negotiated a good price and put it under contract with a contingency clause. Now do your analysis. (Beginners tend to analyze for six weeks but by the time they find out the age of the water heater, the condition of the roof shingles, and the opinions of neighbors, their opportunity may have disappeared.) Instead, do a quick survey to see if it is a good deal, document everything, put your offer in with a contingency, then do your compete analysis.

If you experience analysis paralysis, you’ll lose a lot of deals. That’s why it’s important to gather your information well and act boldly.

Driving For Dollars - Following the Signs to Great Real Estate Deals

by Robert Shemin, JD, MBA

Driving for dollars. Is this a game show, with the host saying: “Good evening, ladies and gentlemen. In tonight’s edition, we have…” Seriously, you can make a lot of money at this “game”—my favorite source of finding good deals in real estate.

Pick a neighborhood that interests you, e.g., in transition, being fixed up, near a river, and so on. Drive around it slowly and write down at least 20 addresses of neglected, vacant, or condemned homes. Often, they’re sporting signs saying For Sale, For Sale by Owner, or For Rent.

Next, contact the owners. You may have to be persistent and call and call to find their numbers and reach them. You can contact the Registrar of Deeds, get on the Internet, and go to the local tax records office. Ask a realtor to look them up on the MLS computer. Once you find them, call or write them to learn more.

Houses with Motivated Sellers How do you tell if a house or property might be owned by a motivated seller? Look for the following characteristics:

• Neglected
• Undeveloped Land
• Vacant
• Condemned
• For Sale
• For Sale by Owner

1. Neglected

Neglected homes have gutters that hang, roofs with holes in them, and horrible-looking yards with trash lying everywhere. But generally in real estate, the worse the disrepair, the better the deal. So as an investor, begin to love houses that have black goo dripping out of the ceiling, animal dung on the carpet, holes in the wall, busted-out windows, and 14 feet of garbage in the yard. The more work the house needs, the more motivated the seller will be. The more motivated the seller, the better the deal will be. The best deal my friend John ever landed involved a house that had 35 feet of garbage in the front yard. Drug addicts had lived in it. When he walked into the house, he could not even get access to the basement because of the garbage.

But the real estate market was hot in this neighborhood and 50 people had looked at it - and walked away in disgust - during its first two days on the market. So John went into the trashed-out house, took a big breath in the smelly environment, and declared, “Eureka. The mother-lode.” He figured that house was worth about $350,000 fixed up. He determined it needed about $50,000 of repair. So he put it under contract for $140,000 (less than half of its value) and got the deal completed.

2. Undeveloped Land

My investor friend Bill in Nashville, Tennessee, finds big chunks of land - 20, 50, 200 acres - negotiates a selling price and puts the land under contract. When I asked where he found deals, Bill said, “I drive around, find land on the edge of town, and either talk to the neighbors or write a letter and find the owner. I have never used a realtor because the property is rarely listed.” Bill asks owners if they would like to sell their land and gets an option to buy it. If it is unimproved farmland, he reads the property codes for that area and often gets the land rezoned to make it more attractive to future buyers. He might borrow money to put in roads and utilities, thus increasing its value immediately. Three months to two years later, he sells this land for substantially more than he paid.

3. Vacant

If houses are empty, the grass high, the bushes overgrown, could those owners be highly motivated to sell? Put them on your list of possible good prospects.

4. Condemned

Look for yellow tape that says, “Unfit for human habitation.” This signifies a code violation at a property. It also excites investors because owners who have been to court (codes enforcement area of the Housing Administration) might be highly motivated to sell after being fined. The court’s message is: “If you do not fix this house, we will fine you more, and if you still don’t fix it by a certain time, we will bulldoze your property.” Some condemned homes require a tremendous amount of work to fix up, maybe too much. The windows could be broken; the electricity or heat might not work. You always have to evaluate it as an investment.

5. For Rent

A house is for rent (especially empty ones) might be owned by a tired landlord who bought the property 20 years ago for a fifth of its value today and is excited to sell.

6. For Sale / For Sale by Owner

As you drive for dollars, look for “For Sale” and “For Sale by Owner” signs. Some might also say “Make Offer” so pay close attention.

Because you are still driving neighborhoods and learning about them, make a point of meeting the realtors and brokers who are active in that area. You will learn a tremendous amount from talking with them…and reading the signs, too.

The Smaller The Sign, The Better The Deal

While driving around, Mary almost missed seeing a little bitty sign behind a bush. She got out of her car, jumped over a low fence, moved the bush, and saw one of those “For Sale” signs available for 90 cents at the hardware store. She could hardly read the phone number. In fact, she wrote down eight different phone numbers and the seventh one was correct. When she called, she asked the man who answered, “How long has your house been for sale?” He replied, “Six months. You’re the first caller.” Mary bought that house for half of what it was worth, wholesaled it, and made about $20,000.

Forbes.com Article: Best Selling Author Robert Shemin Identifies Five Strong Investment Opportunities in Today’s Real Estate Market

PR Newswire - Press Release
10.27.06, 8:22 AM ET

MIAMI, Oct. 27 /PRNewswire/ — Responding to the latest figures released yesterday from the Commerce Department showing selling prices of new houses suffered the biggest decrease since 1970, Robert Shemin — Wall Street Journal best-selling author, nationally renowned speaker and major real estate investor — identified five strong strategies to reassure nervous investors. www.SheminRealEstate.com

“The way you make money is not following the herd,” advises Shemin. “Lower prices mean greater investment opportunities because there are more motivated sellers and more deals coming on the horizon. Now is definitely the time to buy - but to buy smart.“

Shemin’s strategies: 1. Buy to hold Historically long term investors almost always do well. A long term investment strategy is five to seven years plus. Medium is 6-months to five years and short term is less than six years. 2. Buy cash flow Speculators take a chance on rapidly appreciating properties and risk a softening market but investors look for investments that produce cash flow from day one. Be an investor. Go for cash flow. 3. Find secret appreciating markets Look for areas that didn’t appreciate a lot in the past four years and are now steadily climbing or where there is strong job growth. These translate to housing demand and are the best-kept secrets in real estate. I personally like Huntsville, Alabama; Nashville, Tennessee and pretty much all of North Carolina. 4. Uncover “hidden” markets There are exciting markets within markets that make strong investment opportunities. Las Vegas as a market is very soft right now, but in the low to moderate income there is a strong demand for new homes - starter homes - in the $200,000 to $250,000 range. So there is a strong market within a weaker one. Miami is the same. The Miami market is soft, but there is still strong demand for quality beach properties in the $500,000 to $3 million range. So just because a market may have slowed down, look for other opportunities or mini-markets within. 5. Buy international Don’t be afraid to invest in other countries. Do your homework. Talk to other investors. Go to a seminar. Then make your choice. My two favorite picks right now are The Dominican Republic and Nicaragua.

For more free tips email, publisher@thewavegroup.com SOURCE Robert Shemin -0- 10/27/2006 /NOTE TO EDITORS: To interview Robert Shemin on more real estate investment strategies contact him directly./ /CONTACT: Robert Shemin, +1-305-607-9708/ /Web site: http://www.SheminRealEstate.com / CO: Robert Shemin ST: Florida IN: FIN BKS PUB RLT PUB SU: SVY WB-LA — CLF033 — 4535 10/27/2006 08:21 EDT http://www.prnewswire.com
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