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Investment Property Tips

by admin on February 4, 2010

If you’re not an experienced, long-time real estate investor, here are some basic investing tips that can help you get started buying Sacramento investment property without making any fatal financial mistakes.

1. Don’t be paralyzed into complete inaction by the fear of making mistakes. This is known as “analysis paralysis” and it prevents most people from achieving financial independence because they never get started. No matter how many deals you have done, you are going to make mistakes because you’re human. But if you are careful, you should be able to limit your mistakes to ones that merely reduce your profits, rather than causing real financial losses.

2. Are you afraid to invest because you think property values might go down? Well, they might. In fact, there is a greater chance (right now) that prices will go down rather than up. Home prices across the country have already dropped 30% to 50% in some areas, and they MIGHT drop another 10% to 15% in some areas. However, some areas are already experiencing sustained recoveries with rising prices. So if you’re waiting until all the newspapers are saying, “Home prices are now up 10% year over year,” it will be too late. The only way to accurately call the exact bottom is by looking in the rear view mirror, which means you missed it.

3. There is a solution for the “falling prices, fear of buying” problem: Never pay retail! The bigger the discount, the safer it is to buy. Look for undervalued investment properties and if the numbers make sense, don’t be afraid to buy! Smart investors can usually find great deals in any market, but it’s easier to get huge discounts in a bad market.

4. Know your market and know what you’re doing. If you’re buying properties to keep as rentals, be sure to base everything on real numbers, not verbal or hypothetical ones. Don’t trust anyone else for the facts, verify everything yourself. Get your own inspections and bids, research the rental market for actual rents and vacancy rates, look up the crime rate, and verify the actual expenses. Ask for the Schedule E from the seller’s last two tax returns. If they won’t provide the Schedule E, assume that actual expenses are 35% of the rents (not including mortgage payments). Always buy rental property based on the actual cap rates, and always buy for less than the asking price. Remember that “pro-forma” numbers are always BS.

5. If you’re buying property to rehab and flip, know your price points (buying and selling) and the actual costs of rehabbing. On your first rehab, partner with an experienced rehabber and split the profits. That way, your chances of actually making a profit will be a lot greater. (Going it alone before you have some experience is a lot riskier. Most investor horror stories involve rehab projects.)

So do your homework, be sure to buy low (the lower the better), and don’t be afraid to buy if everything checks out. Buy right, sell right, make a profit, then repeat the process. That’s how you profit from investment property Sacramento.

{ 2 comments… read them below or add one }

1 Ben Foster February 15, 2010 at 2:57 PM

Investing advice from Warren Buffet: “Be fearful when others are greedy and greedy when others are fearful.”
That’s how you avoid buying at the top of a bubble, when “everyone is buying” (greedy, but no fear). When no one is buying because their fear has overcome their greed, that’s when you get the best deals. (no competition = lower prices)

2 Frisco Real Estate April 29, 2010 at 12:07 PM

Here in Texas we never saw a bubble or burst. We have pretty flat prices, however I feel that we have seen foreclosures decline over the past year and looking forward I see a strong sellers market in 2012. If you’re looking to purchase in Texas do so now, or you will be paying top dollar in a couple years.

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