4 Real Estate Investment Secrets the Pros Know
These 4 real estate investment secrets represent just a few of the ways that investors get ahead by using smart tactics throughout their journey. Now you can utilize them just like anyone else.
1. Where to Invest
That said, there are no laws about giving advice that can help you to determine this for yourself.
The simplest way to put yourself closer to the level of a professional investor is to simply understand the neighborhoods that you’re looking at. In our market, there are two major cities: Minneapolis and St. Paul. There are also a series of surrounding suburbs.
But understanding the cities themselves isn’t enough. Before investing, you’ll want to know everything there is to know about the neighborhood you’re choosing to buy a property in. Take a drive through the area and observe even the smallest details.
Go online and check crime maps, economic outlooks, other properties in the area (plus their value), and just about anything else you can find about the community. Regardless of whether or not you’re going to live in the property you pick, act like a homebuyer when you research. Consider how renters might feel about the location you’re choosing.
Certain neighborhoods are poised for tremendous upswings and appreciation while others have likely peaked or are on the decline. Are you looking to be a part of a revitalization effort or land somewhere that’s already more established?
2. How to Win Against Multiple Offers
Since duplexes, triplexes, and four-plexes are a unique part of the market, it makes sense that the way offers win would be unique as well. In fact, there are several potential ways to win in the multiple offer situations that are all to common in today’s market.
Believe it or not, there are a significant amount of investors out there who have the funds to make an all cash investment. In cases where all cash is offered, it’s possible for some buyers to get properties for far less than their worth.
As a seller, these offers bring so much assurance to the table that it may be considered as well worth it to accept less money to avoid potential headaches down the road.
Right to Inspection Waived
Inspections are an amazing opportunity that homebuyers have been given to help ensure that the investment they’re about to make is safe. No one wants to buy a home and later discover that it’s in complete disrepair.
That said, there are investors out there that will waive their right to have the property inspected professionally in the interest of helping them to win against other offers.
Why does this make such a difference?
We wouldn’t necessarily say that the vast majority of properties out there are in disrepair, but if you’re in a market like Minneapolis/St. Paul, then you’ve probably noticed that most of the multi-family properties out there are quite old. If there’s any risk that a property might not pass inspection, then it’s very appealing to take an offer from someone that’s willing to go without.
High Amounts in Earnest
Earnest money is offered as a guarantee right up front, and putting up a significant amount in earnest can be helpful in proving that your offer is legitimate and that you don’t intend to go anywhere.
While this is an admittedly small factor, it can be a deciding factor in the case that two near-identical offers come in and one needs to be picked over the other on some grounds.
The kind of financing that you pick can be extremely important as you compete for properties. Financing types that offer up higher down payments or more security are far more desirable than those that offer small down payments and low security.
If you’re planning on financing with FHA, you’ll also have to take into account the fact that with an FHA offer that’s accepted comes a very thorough inspection that’s absolutely mandatory.
Many property owners are unsure if their place will pass an FHA inspection. Their fear in this alone is often enough to drive them towards another offer – even if yours was the highest.
Many realtors recommend writing a personal letter to the seller in the hopes that some form of personal connection can be formed. Sellers are just like anyone else – they have emotions and can be appealed to on this basis. If you’re buying as someone who intends to owner-occupy, you may win the favor of the seller as many of them prefer to sell to owner-occupiers.
There’s never any guarantee that this will have an affect or not, but it’s always worth a shot.
3. The Right Price to Pay
Hunches about value and assumptions based on other recently sold properties in a neighborhood are not enough to help you learn the right buying price for a duplex, triplex, or four-plex.
Instead, rely on a series of numbers that are important to know such as:
- Expected Rental Income
- Anticipated Mortgage Payment
- Estimated Repair Costs
- Other Potential Expenses
It sounds easy enough, but you also have to know how these numbers relate to one another and the realistic estimate for the amount you’ll need to invest in (or take from) each. Know what your potential cashflow scenario would look like – would you be making a profit, breaking even, or losing money based on the price you’re planning to pay?
Most investors accept what is known as the 1% rule. The 1% rule suggests that monthly rental income of roughly 1% of a property’s purchase price is sufficient to pull a profit in the long run.
For example, a property selling for $200,000 should be collecting $2,000 each month in rent from all of the units in order to qualify.
While we acknowledge the 1% rule as a great guideline, there are certainly some scenarios where a profit can be pulled when taking just a very slight bit less than that. That’s important in a market like this where it’s almost impossible to find deals that meet the 1% rule.
4. How to Attract Great Tenants
Great tenants can make your landlording experience stress-free and easy, but bad tenants can make it an absolute nightmare. You might even end up losing money on your property if they fail to pay rent, move out without notice, or do anything of the like.
There are many elements that contribute to helping you find great tenants – some are easily controllable and others are not.
The first thing to do is ensure that the tenant you’re taking on is financially secure. Do not let anyone rent out your property without having a credit checked performed. Another essential thing to ensure that everyone passes is a criminal background check. You don’t want any clearly sketchy characters moving in to mess with your property. And trust us when we say that even the most dangerously bad tenants can come off as great people – it’s better to get a background check that proves it.
Another element that determines the pool of potential tenants you get to pick from is the neighborhood that your property’s in. Are you near a college, a hospital, or a major corporate campus? Is your property a close distance away from downtown and its many workplaces, or are you a little more remote?
All of these elements play a role in who might be looking at your property. It’s not necessary to discriminate against any group, but it always helps to know a little bit about the people that you’re likely to be meeting with so that you can determine if they’d be a good fit for your property.
Also published on Medium.