Vicki Irvin-Maryland Real Estate Investing-Vicki Irvin

12 – Profiting from Real Estate Purchases, Part 4-Maryland Real Estate Secrets
Vicki Irvin
Lloyd Irvin
The Real Estate Investment Queen

7. Go for Favorable Terms

Sellers are often hung up on price. They may be convinced that lowering price is the absolute last resort.

If that’s the case, don’t try moving a stone wall. Go around it. Offer the seller the price he or she wants, but insist on favorable terms.

For example, at the price asked, it may be impossible to buy the property, rent it out, and break even monthly. However, the sellers may have a large equity in the property. So, instead of getting a new mortgage from an institution, you demand the sellers themselves carry back a mortgage at 6 percent instead of the then going rate of 9 percent. Suddenly your mortgage payments are cut by a third! Now the price/rent ratio falls into line.

If the sellers protest, you can point out that you’re paying full price. Many sellers, being penny-wise and pound foolish, will go along.

Terms are critical. Often you can give the seller his or her price and still get a bargain by negotiating for more favorable terms for yourself.

8. Never Pay an Inflated Price

So, we saw how terms could be manipulated to make a high price palatable. The point now is to make sure that no matter what price you get, it’s at or below market. If you pay too much, you’ll lose when it comes time to sell. Remember, you make your profit when you buy, not when you sell.

True value is hardest to judge in a rising real estate market. However, checking comparable sales remains your biggest help. Typically houses are selling rapidly, and there are many sales of homes similar to the one which you are considering buying. You can look at comparables and see what price houses recently have been selling for, to get an idea of what your subject house is worth.

The real trick is trying to decide how much the rising market adds to the value of the home in question. Our suggestion is to play the percentages. If property values are rising 6 percent a year and it’s been four months since the last comparable was sold, add about 2 percent (one third of a year’s increase) for appreciation. That’s just a rule of thumb, but it ought to get you pretty close to the current market value of the property.

You can determine how hot the market is by checking with local brokers and even the local newspapers. They are always giving out the statistics for overall price appreciation in the area, particularly when it’s on the way up.

9. Never Buy Far from Home

Never buy far from home if you’re going to rent out the property. If you do, we can almost guarantee you’ll regret it. (By the way, this doesn’t apply if you’re going to flip a property—then you can buy anywhere.)

When you invest in real estate as a small investor, you are directly involved in management. You are the person who has to solve the day-to-day problems.

If you’re far away, even small tasks can mushroom into big problems. A leaky faucet means an expensive call to a plumber. A broken window, electrical plug that doesn’t work, fallen shutter, lawn that needs mowing—you name it—all require calls to professionals.

If there are big problems, such as tenants who won’t pay, then you must fly or drive miles to solve them.

On the other hand, if you’re close by, you can put an ad in the paper and do it all yourself. If a tenant doesn’t pay, you can be right there to talk with the tenant to find out what the problem is, and correct it. If plumbing, gardening, electrical, or other small work needs to be done, you can do it yourself, or find a close-by person to help with it.

In short, it’s vitally important to be right on the spot when you have a real estate problem.

The only exception to the above rule: if you have 20 units or more, then you can handle it as an absentee landlord. With that many units as a minimum, you can afford to hire a good manager who will take good care of your property. With less than 20 units, however, you can’t afford a manager. Consequently, you need to do it yourself.

It’s important not to get the wrong message, here. We’re not saying that renting real estate is an impossible task. It’s not: 95 percent of all problems can be handled in just a few minutes. If you’re there, you can pick the right tenants. You can do minor work yourself. You can hire out major work to people who you know or to people you can get recommendations on.

In short, being there makes the difference.