6 Steps to Real Estate Success
Before I begin with this "guide" I want to throw in a disclaimer that I recommend paying cash for everything, including real estate. If that's not an option for you, please please please put at least 20% down. It will save you the cost of mortgage insurance. And let's face it. If you can't put that much down, maybe you're not ready to purchase a home.
Okay, moving on...
In order to be strategically successful in real estate investing, you should follow some steps that will help you KNOW that you are getting a good deal. In most cases, you will find that you can’t lose with these steps. In some cases you may find a great deal where theses steps do not apply. Use these as a guide in your investing career. Oh, and by the way, purchasing your primary residence can be included in real estate investing (for the most part).
Find motivated sellers. The best way to get a deal below selling price is to find sellers that absolutely HAVE to sell. If they just want to sell, they are not the seller you are looking for. My very favorite are bank owned (and there are lots of them right now).
You can find motivated sellers by getting a pre-foreclosure list and contacting the owner of each property on the list. Some real estate agencies give the list away, or you can find it online for a small fee. You can also check with your county courthouse to find people who are 90 days behind on payments and have received a notice of default. These people, and their banks, are usually very motivated to sell. They usually don’t want a foreclosure on their record.
That’s where you come in to help. You can offer to buy the house for what they owe on it if that amount is below market value. If not, you can try to get it as a short sale (where they sell it "short" of what is owed), although this can be a very lengthy process.
Prescreen sellers. This falls under the first category, but it is so important I am putting it in its own category.
To prescreen sellers, you must do all that you can to find out the reasons they are selling. Are they moving? Are they way behind on payments and about to be foreclosed? Do they just want to sell and move to a bigger place?
The answers to these questions will let you know if this is your deal. If the seller doesn’t have to sell but wants to, it’s probably not for you.
Make and present offers. Two to three offers out of every ten will be accepted.
I used to get emails from "students" of the company where I worked who were so discouraged because none of their offers were being accepted and they claimed to have done everything they could. When I asked them how many offers they made, they told me they’d made two or three. That’s not enough! If this is your case, make more offers. Of course, make sure the deals are good and you will benefit.
When my husband and I bought our last house it was bank owned. We had looked at at least 200 houses and made six offers on houses we'd seen before "ours." We bought in 2009 and sold in 2011 for $15,000 more than we paid. Not a huge amount, but remember how the market was between 2009 and 2011? Declining! We made money because we found the right deal.
Follow up. Eighty-two percent of good deals come after the 2nd contact with the seller. You’ve heard the saying, “the squeaky wheel gets the grease.” Become the squeaky wheel. Make positive contact, but don’t be overbearing.
Organize financing. You need to have your financing ready for the deal. Get preapproved for a loan. Don't be offended because nobody wants to work with you if you don't have an approval letter. Just be prepared. You can also see if the seller will owner-finance your deal. There are many ways to get financing; you just have to be prepared while making offers.
Have an exit strategy. Are you going to fix it, keep it, or sell it quickly? Whichever the case, you must have an exit strategy ready. It will be beneficial if you have two exit strategies ready, just incase you need one. Some examples: flip, rent, lease option, fix it up, etc.
Following these steps will help you feel confident in the investing process and help eliminate potential mistakes. Remember, when making deals with sellers that have to sell, you have the ability to create a win-win situation for everyone.
If you take over payments when you buy, the loan is still in the seller’s name (which is great for you). To make sure the loan gets paid, run the payments through an escrow. Use a bank as escrow. Open a joint account with the seller where neither of you can take money out. You put the mortgage payment in the escrow account every month and have the bank take out the money and pay the mortgage to the mortgage company.
Check the title. Make sure the owner is the seller. You'll avoid a lot of problems that way. :)
*Disclaimer* I am not a legal adviser, accountant, or anything else that enables you to use this information as anything more that interesting information. I encourage you to seek advice from a professional before doing anything with real estate.