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| Buy Investment Property Without Seeing It |
Why would you buy investment property without seeing it? It's a
numbers game. Whether or not you see the property before you
make an offer isn't nearly as important as making sure the
numbers make sense.
A man in California used to just send out offers on a hundred
MLS listings at a time, offering 25% less than the asking price
on each one. Occasionally a few sellers would accept his offers.
He never had to look at the homes beforehand. Including an
"inspection and approval" clause in the offer meant he could
always back out of the deal later when he saw the house.
Meanwhile, he efficiently found the truly motivated sellers.
This true story demonstrates that with a good clause or two in
the contract, you don't have to worry about making an offer
before you see a property. It's true when you |
buy investment
property or your next home. When it isn't everything the seller
says it is, you can reject the deal with little or no loss. So
why wouldn't you want to look at the property?
Buy Investment Property By Numbers
The main reason you might skip looking at a property before
making an offer is time. This is certainly true if the property
is far away. If you don't get a price that makes sense, why
spend your time traveling to look at real estate investments? A
price and terms that make sense - this is what is important. Of
course you'll probably want to look at the actual property
eventually, but looking at the numbers is how you invest.
Investors value income property according to current cash flow
(or should if they want safe and viable investments), so start
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verifying income. Get the actual income figures for the past
12 months. Always consider the potential income if rents are
raised, vending machines are added, etc., but base your offer on
the current income.
Verify all expenses with investment properties. If any expenses
listed by the seller seem unusually low, they most likely are.
Just substitute your own best guess in place of any suspicious
numbers.
After you determine the net operating income, apply the
appropriate capitalization rate to arrive at the value. If
you're not sure how to do this, get help. However, you really
should understand the principle of how to figure a cap rate.
This is a numbers game you're playing. Calculate loan payments
(talk to your banker), and see how much cash flow you'll have.
Then you can figure your |
cash-on-cash return based on how much
of your own money you put into the deal. Just divide the cash
flow by your investment.
When the numbers work, you can safely make an offer. Inspections
will tell you if there are problems that will affect the cash
flow. You can always renegotiate if there are such problems
(assuming you made your approval of all inspections a
contingency of the offer). Of course, you can even go take a
look now that you are truly ready to buy that investment
property.
About the author:
Steve Gillman has invested in real estate for years. To learn
more, get a free real estate investing course, and see a photo
of a beautiful house he and his wife bought for $17,500, visit
http://www.HousesU
nderFiftyThousand.com
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