A Win-Win Situation

Real estate investments not only deliver profits in an up market, but down markets can yield attractive returns as well.

During an appreciation cycle, it's quite easy to make a profit. As the demand for housing goes up and inventories run low, upward price pressure follows. Successful investors understand the up and down cycles of real estate and use this predictable movement in the market to capitalize on buying and selling opportunities. Note: It can be risky to buy too late into the up cycle because real estate corrections are inevitable...what goes up will come down...so timing is the key.

THE BEST TIME TO BUY IS IN A DOWN MARKET. Investing is all about buying low and selling high. A down market provides the most opportune time to find and buy properties that have the greatest potential for appreciation. The most successful investors understand and implement this strategy to get the highest returns on their investments. This is a strategy I've personally used and have benefited greatly from it's execution. Another benefit of holding property in a down market is the increased demand for rentals. As foreclosures rise, banks lose a tremendous amount of money resulting in tighter lending practices. As it becomes harder to borrow money to buy homes, many families are forced to rent until the lending environment improves. This is a great opportunity for investors to get premium rents for their rentals and reduce their vacancies. Interestingly enough, the rich are buying property when the masses are selling, and the rich are selling when the masses are buying. These contrarian buy and sell moves by the rich should be followed by all. The rich get richer for a reason...follow their actions and you too can be on the right side of the buy and sell transaction.

The Best Time To Buy Or Sell Is When You Don't Have To.

This may seem like a strange position to take when investing in real estate, but the best time to buy or sell (from a negotiation point of view) is when you don't have to. When you invest in real estate, it is crucial that you negotiate the best price you can. If the price is non-negotiable, it's probably best that you move on to a deal with more favorable terms. Emotion has no place in real estate. Every move you make should be based on objective data, logic, due diligence, and a position of power...not weakness. This approach will yield you the best potential return on your investment and should never be sacrificed to get the deal done.

The best deals of my life have been made when I didn't need to make the deals in the first place. When you have nothing to lose, there is simply no pressure at all to give in to the terms of the person sitting across from you. In a very nice way, you are basically negotiating from a position of take it or leave it. This take it or leave it attitude will cut out 90% of the "chest puffing" you will endure from your opponent (home seller or buyer). Caution: If you do walk away from the investment due to the terms of the deal, know that you may not get a second chance to re-negotiate. Timing is everything in this game, and there may be an investor lying in wait to take that deal from you. Have a price in mind based on your research not based on the discount you've negotiated off the list price. If the price is pretty close, don't lose the deal over a few dollars.

It never hurts to submit a low offer no matter how discounted it may appear to be. What's the worst that can happen? You don't get a counteroffer or you do at a higher price? Big deal....that didn't hurt, but what if they accept? You may have just saved yourself tens of thousands of dollars. Most sellers will "pad" the price of their home anyway, expecting the investor to negotiate. This is where a Comparative Market Analysis comes in to level the playing field. You can't possibly negotiate a great deal if you don't know the value of the area and surrounding homes. The CMA will give you an idea of what a below market price might be thus giving you a basis for your offer.

One very important note: An Appreciation Cycle and a Correction Cycle will have a huge impact on your ability to get the best deal possible. When pricing is moving to the upside, know that the seller tends to have more control, and when pricing is falling, the buyer tends to be in the driver's seat. Good negotiating however can be had in both an up or down cycle. Just remember, if you don't have to buy or sell a property, you will have a greater opportunity to capitalize on either side of the coin.

Ready To Buy?..........OK, Now What? Cont...

Part 3 of 3

Where you buy is as important as what you buy in the real estate game. There are several reasons why I moved to Arizona from Los Angeles, California. The reasons pertinent to this blog involve investments in the Arizona real estate market and my desire to be close to the properties I own (it's much easier to manage your rental properties when they're in driving distance from you). Compared to the West Coast, Arizona real estate is a steal. You can find properties in AZ for as little as $55 per square foot. The median price per square foot in Los Angeles is well over $300 and in the nicer neighborhoods you are looking at $600+ per square foot. Looking over the numbers, It's easy to see why AZ is an ideal place to buy real estate.

I would not be as successful at doing my due diligence if it weren't for the Internet.The Internet is an amazing tool for research. When I started looking for properties to buy, I was able to research the location, builder, subdivision, pricing, and community amenities all from the the comfort of my Desk chair. I can't imagine how many miles were spent flying and driving to scout properties before the wide spread use of the Internet. Tools like Virtual tours on the Internet allow you to see video of the interiors of homes you're interested in without the hassle of driving to the actual home. Floor plans and property detail pages also give you greater insight into the style and layout of the home. As I did my research, Queen Creek, AZ kept popping up as an awesome place to invest in. The size of the homes coupled with the price per square foot was just unheard of. The icing on the cake was how "new" the area was to residential construction. It was truly virgin territory and the land developers were just starting to catch on.

The best locations of all to invest in are the locations that will bring you the highest and fastest return on your investments. A strategy that has worked for me is finding areas that aren't on anyone's radar. I look for places that no one is talking about YET but the potential of the area is just oozing dollar signs. Let me give you a real life example of such a strategy. I found this little subdivision in Queen Creek, AZ, on the Internet, while I was still living in Los Angeles. I almost fell out of my chair when I saw what the homes were going for. I'm talking about Golf Course homes for $75,000 - $95,000, yes that's right....$75,000 - $95,000. I called a couple of friends and basically said, "I'm jumping on a plane to AZ to pick up a couple of fantastic investment properties....anyone want to come?" Well, we took that flight, drove to the subdivision and checked it out for ourselves. The subdivision looked like a Ghost town. A Tumbleweed literally rolled right across my foot while crossing the street and my two buddies looked at me like, "what in the heck did you get us into." I laughed pretty hard and said, "Trust me, if this was a well established and sought after neighborhood, the homes wouldn't be going for $75,000. It's new, and no one knows it's here...YET!...build it and they will come, to steal a line from a movie, and trust me, they will come." Well, my two friends were not convinced and decided to pass on buying in such a remote location. I, on the other hand, did sign a contract that day. The neighborhood had over 20 newly built Spec. homes, and I had my pick of whatever I wanted. I chose a smaller single story home with a few nice upgrades like tile floors and a covered back patio. Within 6 weeks of my purchase, all of the newly built Spec homes had been purchased. 3 months after my purchase, the same sized home in the community was selling for 50% more than what I paid, and in 8 months, I had made a 100% return on my purchase. Yes, I doubled my money in 8 months. I did keep my two friends updated on how well the investment turned out. I think you can figure out how that went.

Ready To Buy?..........OK, Now What? Cont...

PART 2 of 3

Should you buy new or old construction? When I started investing in real estate, I lived in Los Angeles, California. The available homes for sale were typically 50 to 80 years old. The option of buying new in the area was very limited and very expensive due to shortages in residential lots to build on. Here in Arizona, the opposite is true. There are new subdivisions popping up every day with huge inventories of new homes. Having invested in both new and old construction, it is my opinion that "new" is the only way to go when possible.

Think about the following before you buy: New homes typically have a 2/10 warranty attached to them. That means if anything goes wrong with the home in the first 2 years, the builder will make the repairs at no cost to you. The "10" in the 2/10 warranty refers to the structural components of the home. If you have structure related issues, the builder is obligated, under the warranty, to correct the issue(s) for up to 10 years. The 2/10 warranty is something you won't find offered on older homes. An older home may come with a 1 year warranty such as American Home Shield, but if you read the details of the warranty, you'll find their liability is very limited and there are deductibles you'll have to pay with each and every service call.

New construction has the advantage of very attractive entry points into the market. In a down real estate market, builders become desperate to unload their inventories of homes. It is not unusual to see price reductions of 20% to 30% when inventories rise, not to mention other incentives like paid closing costs and discounts on upgrades. The typical homeowner selling his or her home just can't compete with that. Builders can sell their homes for just about whatever they want as long as there's a profit in it for them. The typical homeowner has a mortgage that limits just how low they can price their home. Most homeowners see the builders as the enemy in a down real estate market because of the constant downward pressure on pricing. This, however, is music to the ears of the investor. Correcting real estate markets mark the sign of frenzied buying by those investors sitting on cash looking to find a bargain. Down cycles are a time of massive real estate accumulation for most investors as they yell to the heavens "load up and buy as much as you can afford". Homeowners on the other hand are not as full of glee and optimism. No, for them, it's pretty much doom and gloom.

Older homes do have their place. If you want that one of a kind view home in the hills overlooking the city, you may be quite content with it's age, especially if it's in good condition. You may have a specific neighborhood in mind or area you favor investing in that's completely built-out. In that case, an older home may fit the bill. Just keep in mind, older homes usually mean older plumbing and electrical components that may need updating, greater chance of pervasive termite infestation, leaky roof possibilities, and antiquated decor. Make sure you hire a licensed inspector to reduce your chances of buying an unsound property. The cost of hiring an inspector is well worth the money and may serve to help you keep your money from falling into a money pit of repairs.

Ready To Buy?.......... OK, Now What?

PART 1 OF 3

You're ready to buy, you know what kind of property you want, your credit is good (or you have substantial reserves), and you've been pre-approved by your lender. So what's next? Remember, LOCATION, LOCATION, LOCATION is important, but there's a twist on that. Most novice investors do not have the capital to buy property in a prime location like the beach or a hillside home with a view. "Value" can be a great substitute if your location choices can't be top notch. When I use the term "value", I'm referring to the price per square foot I'm paying for the property. This is an extremely important investor measure which when used properly can help you determine whether you are paying below market value, at market value, or above market value.

Using the price per square foot measure to determine value is very easy. You take the price of the property and divide it by the livable square footage. FOR EXAMPLE: Home #1 is a 3 bedroom 2 bath home selling for $200,000. The home has 1,700 Square Feet. Home #2 has the same # of bedrooms and baths and is selling for 150,000 measuring 980 Sq. ft. Which is the better value assuming the neighborhood is the same, and the condition of the homes is identical? Well, using the the fore mentioned formula, House #1 is the better value because it is selling for $117.65 a square foot, and house #2 is selling for $153.06 a square foot.

As you can see, a cheaper selling price does not always relate to the home's value when compared to other homes in the same neighborhood. Part of buying your first investment property will involve getting a Comparative Market Analysis (CMA) on the homes that are selling in the location of your choice. This will help you make a more informed decision. Sites Like http://www.zillow.com can show you the values of homes around the property you're interested in.

Inspiration * Motivation * Action * Execution

Very few people become financially secure doing something they hate. The average person wakes up to start a work day that lacks passion and interest. The one thing I can say about real estate as it relates to me is that I'm very passionate about it. I have no problem eating, drinking, sleeping, and talking about real estate all day long. I believe success first comes by being inspired by someone or something. Once inspired, you become motivated to act on and execute a plan to become successful.

INSPIRATION - When I was a very young child, my mother and I would spend holidays like Thanksgiving and Christmas at my Grandparent's house. My grandfather was a very successful business owner with a big beautiful house and a Rolls Royce in the garage. My mother and I lived in a lower middle class neighborhood, so I was always in awe when I went to visit my grandparents. I would always ask my grandfather questions about making money to the point of probably annoying him, but he always encouraged me to do what it took to be successful. My grandfather was my greatest source of financial inspiration.

MOTIVATION - At the age of 5, inspired by my grandfather, I was motivated to find my own ways to make money. I would do things like sell my old toys to friends and neighborhood kids, and I was known to sell a gallon or 2 of Lemonade from a corner stand. Bottom line, I did whatever it took to put cash in my pocket. I had an extremely strong work ethic from a very young age. My mother wasn't too thrilled about this behavior at first, but slowly warmed up to the idea that her little man was becoming quite the entrepreneur. As I grew older, I continued to find ways to make money having very little interest in working for someone else.

ACTION - Once you've been inspired and have become motivated to become successful, the next step is to put a plan into action. You have to be willing to "pull the trigger" on an idea you feel has potential. As I say in my August Thought of The Month, " Opportunities to make money come and go. The greatest losses of all are those from missed opportunities. The Rich explore those opportunities, while the poor and middle class assume they’ll have a second chance."

EXECUTION - The success or failure of your actions will be determined by how well you execute the details of your plan. Some Real Estate investors have been nothing more than lucky with their investments, but an investor who executes his plans well can make money in an up or down real estate market. This is what separates the weekend investor from the multimillionaire.

Getting To The Good Stuff...A Change In Direction

As with any education, a good foundation is crucial to moving forward. I covered the basic fundamentals of Real Estate Investing in the launching of my Blog site in July of 2007. I'm going to now change the direction of this Blog site and get into the material that makes me so passionate about what I do. I'm talking about the Blood & Guts of real estate investing.

The tone of my future posts will read more like an investing diary of my past and current experiences. I'll give you the unfiltered reality of "the game" and how it can change your life for the better. There are lessons to be learned from my mistakes and triumphs, and my hope is that it will make you a better investor.

I would like to address a question I've been asked on several occasions. Question being, "Why are you doing this and what are you getting out of it?" Human nature is funny to me at times. It's very predictable for the most part. I don't find it unusual to be asked such a question because we live in a world where people feel that you don't just get something for nothing...there must be a catch or an ulterior motive. I'm guilty of sharing that opinion at times, but I know for a fact that it is not always true. I'm truly doing this for altruistic reasons. Many of you, who know me, can attest to the fact that I willingly give information on investing without expecting anything in return. I actually enjoy helping people better themselves, and I get great satisfaction in giving back in any way I can.

Enjoy the site and tell a friend who might have an interest in the material. Once again, I look forward to your feedback.

Investment Ownership Review

Hopefully, after a dozen posts or so, you have a greater understanding of the basic fundamentals involved in Real Estate Investing. We've gone over why you should invest in real estate, the types of real estate you can invest in, the advantages and disadvantages of each type of real estate (I purposefully didn't get into commercial and trailer/mobile home forms of real estate for obvious reasons), how important your FICO score is to your success, and the importance of building an ample cash reserve.

Those of you reading my Blog are welcome to post questions or comments. The questions or comments you have may be of interest to other readers, and I will will promptly answer any question you may have. Just look for the "comments" link at the end of each post.