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Don't run all over town! There's an easier way to buying a home or investment property.OK so you're looking at buying a home or investment property; You’ve got yourself structured correctly for asset protection and tax effectiveness, you’ve found yourself a broker and received pre-approval from your chosen institution. You're ready to get out there. But how to you go about finding a home when you're stuck at work or home with the kids? Read on... Let's just recap what we're looking for first. Firstly, we're buying a home or investment property that has good capital growth (our main wealth vehicle) so it needs to be in a good capital growth area. Secondly, we need a property that is going to pay for itself as a minimum; better still it produces extra income. The property must "pay for itself" based on the full purchase price, not just the amount you borrow. This way when you add some value and take your money out it will still pay for itself. So if a property is $100k and the rental income is $650 per month then the return is 7.8%. As a general rule of thumb you’ll need around 2% above the interest rate to be cash neutral i.e. to cover insurance, management fees, vacancy, maintenance and taxes. Of course this depends on the property. So when buying a home you’ll need to work out at what price the property is cash positive, or at least cash neutral, before you make an offer. Thirdly, it needs to be a home that’s not at its peak value. This means that you have an opportunity to add value to it either by: a) simply increasing the rent (sometimes people just forget to increase the rent and you can add instant value by putting the rent up) or b) doing something cosmetic to it (this will also allow you to increase the rent). Note that we're not looking at buying a home that has structural problems. We want to buy structurally sound properties that are perhaps just a little run down. Fourthly, we're buying a home at a fair price,or better. Notice I didn’t say "wholesale" price or anything like that. To me "wholesale" implies that you’ve gotten it cheap. Now to get it cheap the vendor must have traded something or in other words received something to let it go below market price. There are genuine reasons why a vendor might do this e.g. they need to move quickly and you are on the spot with a no finance contract. The problem is that you normally need to be in the right spot at the right time to get these deals and generally this takes time and effort. Bottom line is that buying a home at "wholesale" is great but don’t overlook other deals that still stack up at the vendor asking price. Fifthly, they need to be homes in the mid range of price for the area. Buying a home in the mid-range will ensure high demand, good capital growth and strong rental income. Well that’s all great I hear you say but how the hell do I find this sort of property when I’m working 60 hours a week and my weekends are full. Read on and I’ll show you…. Sidebar: If you ever wondered why buying a home that's new is not usually a good investment here’s a clue. If it’s a new home then the builder will have, in determining the sale price, added the cost of the land plus the cost of the building plus a margin. So when buying a new home you usually end up paying top dollar and there isn’t room to add value to let you take your money out. You do get some tax benefit with new property but what’s the point of that if you’ve got your money locked away in it. Sidebar: Have you also noticed one of our new Investing Business rules beginning to appear here? It’s this, KEEP YOUR MONEY MOVING. It is the momentum of money that builds money.
So how do we find properties with that meet the selection criteria and how do we do it without spending a lot of time on it. Simple, get someone to find them for you. You have a couple of ways of doing this. You can write up a list of everything that you’re looking for in an investment property, including the criteria above, and fax it to the real estate agents in the area you are looking in. It’s becoming more of a buyer’s market now so real estate agents should send you a good list of properties that meet you criteria including a picture and the financials (price, rental income, rates etc). What do you do then? Go and have a look at them? NO NO NO. Do your numbers and work out which ones stack up. Remember when buying a home with this strategy they need to pay for themselves (including interest, rates, maintenance etc), they need to be in good capital growth areas, they need to have capacity to value add and they need to be around the mid price range for the area. This is all information that the Real Estate agent should readily have so let them work for you while you have a coffee at home. You will of course need to double check the facts the real estate agent gives you; don't believe what the agent gives you until you've double checked it. How do you double check? We'll put you're thinking cap on and work it out; I'm sure you can work out how to do this. This is exactly the sort of decision making that you'll need to practice as Manager of your business. So really think about it and if you still can't work it out drop me a line at rich@quickstartinvesting.com and I'll send you a paper on the subject. But you must try hard on your own first! Want to know an even better way to go about buying a home; find a Buyer’s Agent in the area that you’re interested in. In most States the Buyer’s Agent (the person acting on your behalf) is paid out of the selling agent’s commission so it won’t cost you anything. So simply ring up a few buyers’ agents, explain what
you’re looking for and let them find the properties for you. They’ll
even help you qualify the deals. So now we have several opportunities on the table and we've done our homework to see which ones look promising. Remember concentrate on the numbers, the property must be positive cash flow or neutral cash flow and must not need structural work. Do we go and have a look at the properties now? Well you can if you like but you don't have to. If you have your contract clauses right you can safely put offers in without looking at the property. Those offers that do get accepted you would want to go and have a look. Can you see how efficient this strategy is TIME-WISE? Can you see how being busy with all sorts of other things should NOT STOP YOU from investing in real estate? Do you see how our Investing Business is starting to take shape? We are the Manager of our business and we think of smart ways to get things done for us and not by us; for free if we can and for a fee if we have to. You become the Manager of your own Investment Business. OK almost there. Go to step 5 and then you'll find
something a little surprising.
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