Price is not the deciding factor in any deal, no matter what the gurus out there try to tell you. Basing your buying decisions on price will end up costing you much more than you thought you saved in the end. By thinking beyond price in your deals and not considering the critical factors such as holding costs, you will get burned.
Focusing on price can also tempt you into markets you don’t understand. There are plenty of companies who will crow about the profits they can make you when you invest in their market, but how do they make that profit? What is the house like? What kind of neighborhood is it? Without the ability to see the property yourself, you’re driving blind into potential disaster.
This week, Larry talks about knowing where to find properties that you will want to buy to make the most properties. The Multiple Listing Service is not usually the best option; mainly because it is difficult to get your offer in front of the seller. If you are not direct to the decision maker, it is quite possible the “gatekeeper” will not do as good a job as you can pitching your offer.
Attorneys can be a good source of leads for investors because they often deal with sensitive issues that require homeowners to liquidate those assets. As an investor, if you maintain a stellar reputation of being a person who does what they say they will do you might find this method very successful.
CPA’s are also a good resource, they often run into taxpayers that are on the verge of financial difficulty. If you maintain a good relationship here, leads can come to you this way all year long.
Larry likes to focus on free and clear non owner occupied properties. He finds that these properties are much easier to buy on terms from the owners as compared to those that have existing debt. These sellers also may be facing a taxable event by selling their home, by offering terms, Larry give the seller an opportunity to reduce their taxes that year according to current tax code. (Check with your CPA regarding IRS Section 121 and Installment Sales Agreements)
Investors often get caught up in price or value or compare that to the profit in a deal. The value is subjective, and actually is in the eye of the beholder. Depending on the type of buyer the value can swing wildly. Here is an example a rehabber might value a $100,000 house at $50,000 because he has to invest $20,000 in repairs, spend more money to sell the home and pay taxes on the capital gain. A Buy and hold investor might value the same house at $80,000 because it will bring $1,200 in rent as it sits today in its current condition.
Have you ever considered a trade for something? Remember as a child, trading a couple sticks of gum for a baseball card? You valued the baseball card more than the gum, and the card owner valued the gum more than the card. Real estate is no different, people trade houses for all kinds of things that they value more than the house. An example would be trading for a motorhome; the seller takes your motorhome in exchange for the equity in his home. In this example the seller wants a motor home more than the equity in his home. In this example, price really did not matter, it was a trade of one tangible item for another, its that simple.
Notes on the other hand, provide a catalyst to make a deal work. More often than not, a note is valued more than the actual real estate to many people. It is important to consider many options when making an offer, don’t assume its just cash that the other party wants.
Have you ever attended LArry’s never Step Into a Bank Again course? You can read more about this course at www.LarryHarbolt.com
In this week’s episode, The Real Deal explains that today, many young folks feel that because they have no experience, that they need a partner. The problem with that logic is that often the partner has little to no experience either. When choosing a partner in a deal, that person should have quite a bit more experience than you do.
Instead of jumping right into a partnership with someone on the same level as you, perhaps it makes more sense to educate yourself, and then make an arrangement that makes sense with a “financial friend”.
It is critical to do the right thing when you take on a financial friend, no matter what, that friend needs to be treated fairly, and must be paid, before you get paid. Don’t fall into the trap of believing that just because someone has a few dollars that they know anything about real estate investing. It is critical to set boundaries up front, and to clearly define each other’s duties and responsibilities.
Larry also discusses being “hands on” with your rehab jobs and how that can work against you. Commonly, newbie investors feel that they are actually “saving money” by doing the work themselves. The actuality is that you can negotiate that savings when you buy, instead of trying to sort it out when you sell. Larry goes on to explain his “white shorts” theory that helped him get his “hands out of the dirt” so to speak.
Have you visited the new and improved LarryHarbolt.com website? Check it out and get ready to launch your investing career today!