Here are some highlights:

Using the example by the Motley Fools, a person who invested $10,000 in 1980 would have approximately $115,981 over a 25 year period - an amazing return. Now look at the 25 year value of a $76,400 property purchased in 1980 - that’s right $295,100! After the renter pays off the mortgage and interest, the real estate investment would be worth $295,100 or a sweet $179,119 more than the stock market investment. Even with zero cash flow, you still have twice the money.

Bottom Line: When done correctly, Real Estate Investing will beat the Stock Market hands-down. Visit Thanks For The Bad Advice Fools for the entire article.

Determine Your Target Price
If you have a target price in mind prior to the negotiation process you can effectively design your offer and counter-offer strategy to reach this goal. Make sure your price is reasonable; balancing your desire to own the property with market price and value fundamentals.

Offer Less Than You Expect to Get
Even if you have never heard of negotiation strategy, you probably already know to start your offer low to see what response you get. If you do nothing else, this strategy should reduce the asking price by 1 or 2 percent.

Bracket the Offer Effectively
Untrained negotiators usually expect to transact at a price halfway between their starting point and your initial offer. “Bracketing” means that you have taken this knowledge into consideration and have made adjustments within your offer to reflect it. The opening position should be low enough that if the seller splits the difference, the resulting price is lower than your target. For example, if the asking price is $110,000 and your target price is $105,000, you may bracket this negotiation with an offer of $98,500 (rather than $100,000). This would create a range of $11,500 and a higher chance of you obtaining the property at or below your target price.

Never Offer to Split the Difference
Splitting the difference in a negotiation means that you offer a number that is half way between both sides. The problem with this method is that if you are the one that makes this offer, the seller can now negotiate with your new price as a low point. You effectively re-bracket yourself with the estimated final price above your target.

For example, if your offer is $180,000 and their asking price is $220,000, an effective negotiation should result with an approximate $200,000 final price. If you offer to split the difference too quickly, the new bracket positions will be $200,000 and $220,000. In this case, the probable outcome will be closer to $210,000 and you will have left $10,000 on the table.

Look for Gains Beyond Price
Once the price is close to final, see if you are able to get anything more out of the deal. There are literally hundreds of ways to do this so try something unique. A friend of mine once added the request for a few hundred new golf balls to the final offer. The seller was not willing to counter-offer - removing the golf balls – and risk losing the deal.

Final Thoughts
Using a negotiation strategy will ensure that you have created a final deal that satisfies both parties. You will have ethically presented yourself and your offers with proactive purpose, rather than reactive response and you will obtain the best outcome possible for your negotiation. These rules will help you understand the process and successfully obtain the properties you want to buy. ]]> http://realestatestarttofinish.com/2007/07/04/negotiation-strategies-for-buying-property/feed/ http://realestatestarttofinish.com/2007/07/03/3-strategies-to-profit-with-investment-property/ http://realestatestarttofinish.com/2007/07/03/3-strategies-to-profit-with-investment-property/#comments Tue, 03 Jul 2007 19:38:08 +0000 Lewis Real Estate Investing http://realestatestarttofinish.com/2007/07/03/3-strategies-to-profit-with-investment-property/ Millionaires are made everyday using a great investment vehicle called real estate. With this dream in mind, it is important to choose your strategy and know the factors that will result in your success. Using the following methods as a starting point, you can clearly define your ‘high level’ strategy and focus your methods to speed up success.

Buy, Fix, Flip

The profit center in this scenario is really the quality and speed with which you are able to upgrade a property and sell. Even if you have the perfect renovation project you need to make sure that there is a solid return on investment (ROI) once you are finished.

One key to this method is to buy the worst property in the best neighbourhood and bring it up to standards that buyers in the area would expect. Trying to buy a cheap property or renovate a great place with cheap upgrades just won’t work. Know your market, know your area and know the value that you are adding to the property.

Hold and rent

This strategy really comes down to cash flow from rental income. Choosing to rent fits the old line, “you make your money when you buy, not when you sell.” If you can find a great property that has a positive cash flow (after all expenses) and monthly equity build-up then your long-term ROI will be great.

When calculating your net income from rent, be sure to include both immediate monthly and potential long-term expenses. Factoring in the payments, interest and taxes (PIT) is as important as the home insurance, condo fees, maintenance and management fees.

Speculation

One major decision when investing is whether you will become an investor or a real estate speculator. The investor buys for short-term profit (buy low, sell high), rental income (positive cash flow) or increasing value (renovators); the speculator buys real estate with long-term plans and future scenarios in mind. Speculation involves either buying in a depressed (down) market or buying before a boom.

Knowing when to jump into a down market is as exciting as knowing when to get out of a boom! When investing in this method, you need to complete a thorough analysis of why there is a market change and when the increased value will take place.

If you choose to go this route, ensure that you have the funds to support the property (including raw land, vacation property or options) and have a clear exit strategy in mind. This is the most difficult to support; however, it can be the most lucrative in the long-run.

Final Thoughts

Becoming a real estate investor can be an exciting step towards financial freedom. However you approach the market, be sure to have a clear entry and exit strategy in place. Also, ensure that your financial situation can support the methods you choose and minimize your risk by keeping your real estate educating current. ]]> http://realestatestarttofinish.com/2007/07/03/3-strategies-to-profit-with-investment-property/feed/ http://realestatestarttofinish.com/2007/07/02/how-to-increase-the-price-of-any-property/ http://realestatestarttofinish.com/2007/07/02/how-to-increase-the-price-of-any-property/#comments Mon, 02 Jul 2007 17:15:58 +0000 Lewis Real Estate Investing http://realestatestarttofinish.com/2007/07/02/how-to-increase-the-price-of-any-property/ The main value indicator of commercial real estate is based on how much net income it produces. The key word in this statement is ‘net income.’ An investor is not looking for revenue of $25,000 in rent each month only to find that the expenses amount to $30,000 – this is just a money-losing property. A buyer is looking for a property with a solid income and a good rate of return. Increasing the net income of a commercial property can be achieved in two main ways.

Increase Rent

The most obvious way to increase the value of a commercial property is to increase the base rent of each unit. Of course, this does not make a landlord a well-liked individual; however, one does not need to add sharp increases to add significant value to the property.

Take for example a 10 unit apartment building with rent set at $800 per unit per month. With a total rent of approximately $8,000 per month or $96,000 per year and expenses at $65,000 per year, the net income would be approximately $31,000 per year. Based on a 9% expected return on investment (ROI) this property would be worth $344,444 to a buyer. If the rent on each unit can be raised by only 2.5% ($20) the net income would rise to $33,400 and the building would now be worth $371,111. That’s a $26,666 increase in value for only $20 per month!

While the rents are the easiest place to add both cash flow and value to a building, this is not always the best option. By raising rents a landlord will run the risk of having people leave the building, thus creating vacancies in the process – a key consideration in any rental market.

Decrease Expenses

Another great way to increase property value, and does not directly affect the tenants, is to decrease monthly expenses. This is an often-overlooked item because it is much harder to accomplish than simply writing a rent adjustment letter and distributing it throughout the building. Decreasing costs should be an ongoing duty of the property manager and building owner.

To begin this option, utilize the help of a Certified Professional Accountant. A professional accountant can usually uncover additional ways to successful cut costs, taxes and fees in your operation. They will also help you look at all outgoing expenses and determine which could be reduced or eliminated.

Reduced Expenses: these may include utility invoices (reduce water and electrical consumption in public areas), cleaning (outsource to the lowest qualified bidder) and advertising costs (ask for referrals from good tenants)

Eliminated Expenses: gas or heating costs (write these as owner responsibility), yard maintenance (remove grass and add decorative stone) and energy (eliminate free electrical outlets for parking)

Final Thoughts

The wealth that can be generated by commercial real estate is almost limitless. Over time, having the ability to increase the net income from a property will result in a much higher value and sale price when the time comes. By using different techniques to either increase revenue generated from the property or reduce expenses, these small changes will lead to much larger sale prices.

Insurance

This may be the most obvious monthly expense but one that is regularly missed in the initial analysis. Buying insurance on your property is a must, especially since you are generally allowing strangers to live in your huge investment.

Depending on what type of property you own and where you are located, you can expect to pay between $25 and $75 per month for an average property. To make a general calculation, I usually use 0.02% of the total purchase price for the monthly cost; which will work for standard rental homes.

Condo Fees

A $100,000 condo with rental income of $1,000 per month and PIT (Payment, Interest and Taxes) of $800 looks great until you add that small $300 per month condo fee! Make sure you know EXACTLY what the condo fees will be before you buy the property. This also means that you should check the reserve fund and any recent decisions made by the condo board.

Vacancy

Now we’re getting into the expenses that don’t show up as a monthly withdrawal but will knock a dent in your dreams of early retirement. The first question is: do you know the vacancy rate in your area?

To get these numbers check with local realtors, business groups and even other landlords. If you’re confident that you will have not trouble renting the unit, I’d suggest you still leave at least 5% (approximately two weeks) as a minimum and include it as a monthly expense. This does not mean that you write it down; it means that you keep it in the bank! Once you have the equivalent of about 1 month’s rent saved, then you can consider other uses for the money.

Maintenance

Here is yet another expense that thrives on Murphy’s Law. If you are diligent and keep an ongoing account for maintenance and repairs, you’ll probably rarely need to use your reserve; however, if you do not plan ahead there’s a good chance all the appliances will break in the same week!

The maintenance fund is a crucial part of your real estate management strategy. I would suggest you put aside between 2% and 8% of the monthly rent depending on the age and condition of your property. As this reserve fund grows you can feel more secure and not need to pay high interest when the roof needs repair or the bathtub goes.

Management Fees

I leave management fees to the end because this seems to be the least likely expense people are willing to set aside. The common reaction is, “I manage the property myself, why would I need to set money aside for management?” My reply is based on the theory of duplication. If you are planning to start a real estate empire (and not end with just one property) then you will need to have good quality managers running your buildings.

If you only have a positive cash flow without factoring in any real estate management expense, then your plans better include carrying costs as your portfolio grows. Based on my experience, management of single or smaller units will run about 10% of the monthly rent; dropping to 5% or less as the buildings increase in size and value.

Final Thoughts

The list of property expenses above means that, as a good rule of thumb, you should include a premium of between 10% and 20% of the total expected rent for non-PIT costs. While this may seem like an extremely high number at first, a solid property that will give a continuous monthly cash flow will almost always support this adjustment.

As you may know, the posted mortgage rate (one you should never, ever accept) is around 7.2% My colleague was offered and accepted a 5 year closed fixed rate of 5.09% On a $300,000 mortgage this is going to save her over $6,000 per year from the posted!

Most of the accepted rates I’ve heard about out in the market are closer to the 6.2% range (the usual 1% below posted.) I’m going to do a little more research and find out if there were any unfavourable terms and conditions in the mortgage rate.

If you want more information try visiting Mortgage Secrets Exposed or Creative Financing Secrets. Have a great week! Let me know if there’s any new mortgage information out there.

A few years ago, when I began looking at real estate investment, I was still working under the old theory of fixed, medium to long-term mortgages with 25 year amortization. The problem was, while I continued to read recent books, I missed the information current investors had. On key piece of information is the interest-only (or close to) mortgage and 40 year amortization.

Comparing the two, a $100,000 mortgage at 5.25% with a 25 year amortization would cost about $599 per month. The same mortage with a 40 year amortization and interest only would cost around $437 per month. That can add a lot of needed cashflow to your property and even make it viable in the process.

The only thing to keep in mind with this method is:

1. you are banking on high appreciation
2. rents must keep going up

Just something to think about…

I’m excited to be launching this new site as a great source for Real Estate Investing information, news and techniques. I look forward to reading your comments and responding to your questions. Of course, be sure to sign up for my RSS feed so you can keep up-to-date on my latest postings.

Great luck on your Real Estate Investing future.