Things To Consider Before Becoming A Real Estate Investor - Part Two

Last week, we started our series on frequently asked questions that people have when  thinking about getting into real estate investment. We covered questions such as,  “What are some things to consider when starting out”, and, “How is buying your first  investment property different from buying a primary residence?”. Today, we’re doing  another deep dive on two other burning questions.


 

3. What are some tips on negotiating?

Timing, information and strategy are keys to negotiating an investment property. Any  long-term real estate investment business plan should include continued education in  sales and negotiation. A small 3% savings on a $300,000 property is $9,000 in your  pocket.


Unlike with a primary residence, you will likely have much more flexibility with your  closing date when buying an investment property. Use that to your advantage. You  may want to offer a quick closing instead of offering the seller's asking price. You would  be amazed at how quickly you can negotiate a favourable price by using the closing  date to your advantage.


Also, with the use of public records, you can find out when the property was purchased  and for how much. If the property was purchased within the last year or two for a  substantially lower price, perhaps there is more flexibility on the amount you purchase  the property for. Or if the seller has moved into another home, perhaps they are making  multiple mortgage payments and are motivated to sell. When you find out any  information on the seller's situation, ask yourself how you can use that to your  advantage.


And lastly, if you are ever verbally negotiating a price try not to be the one who names a  number first. Let the seller speak first. If you answer first, you could be paying a lot  more for the property than required. Perhaps the seller was willing to accept much less  than your first offer. If you are asked how much you would offer on a property, answer  with a question. For example, "If I was able to close on the property quickly what would  be the best you could do?".


 

4. What are some short-term and long-term goals to keep in mind with your real  estate investment business plan?

Initially, you will want to focus on cash flow. Calculate how much positive cash flow the  property will produce every month.


No matter how you do the math if the property costs you money to carry then it likely  isn't a very good investment. Many beginners convince themselves that a negative  cash flow property is a good investment because the appreciation of the property will  more than make up for the monthly losses. That strategy backfires more often than it  succeeds. Ask anyone who purchased at the top of a market cycle. Appreciation of a  property can never be guaranteed. Be suspicious of anyone who tells you otherwise.


Long-term you will want to focus on how large of a real estate asset base you would like  to own. Positive cash flow real estate will produce monthly income and pay down the  mortgage. Over time you'll own the asset free and clear. At that point, the positive cash  flow will be much higher, and your net worth will have increased substantially. You can  then refinance and pull out substantial amounts of capital or use the cash flow for other  investments. And if you do pull out some equity on a rental property your tenants will  help pay the mortgage down again. This is what makes real estate such a beautiful  thing!


So, in your real estate investment business plan decide initially on a cash flow amount  you would like to achieve on each property to make it a good investment. Then decide  how much real estate you will need to own "free and clear" to produce the income you  desire.







Watch out for part three of “Things To Consider Before Becoming a Real Estate  Investor” by coming back to this blog page next Wednesday. In the meantime, if you  have any other real estate investment questions you can reach out to me anytime by  calling 905-683-7800.





 

Thanks for reading today’s BLOG!!!

Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com

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