The most important thing for beginner real estate investors is to find great deals. Not good ones, great ones. Beginners and experts make mistakes and a great deal can handle mistakes and unpleasant surprises and still come out on top. Here are some steps that will help investors find great cash flow deals.
- Define your criteria – Rents should be twice PITI (Payment+Tax+Insurance) or 1.5-3% of Purchase + Repairs.
- Define high cash flow areas to target – Nice suburbs and areas in most cities can result in housing prices 4 or more times some of the cheaper areas. But rents are not 4 times. The areas to find the best cash flow properties are usually in the Ok areas. Some of the most successful cash flow investors make their money with class C or class B properties. Definitely stay out of warzones, but you can cash in the areas that have potential, low housing prices, but rents are really high compared to purchase. Remember, this is a business so you don’t have to be comfortable living there. You just have to like the numbers and do your due diligence to confirm success.
- Get as many properties into your pipeline as possible – The more properties you get into your pipeline that fit your criteria, the more and better deals you will have to cherry pick from. It is called playing the numbers game.
- Create efficient systems to filter out the duds – Avoid timely due diligence on properties that are duds or not yet under contract. Due diligence can wait for properties under contract, you must get good and quickly determining market value, ballpark rehab and whether to proceed with an offer.
- Write lots of offers – Play the numbers, write a lot of offers. Worst case scenario is you get a No. It doesn’t matter what the asking price is, investors should only care about what the property is worth to them. If you develop a relationship with a source that is feeding you great deals over and over, value the relationship and do not insult them with low ball offers. Just offer on deals that make sense and maybe verbally communicate a lowball.
- Complete thorough due diligence on contracted properties – Once a property is under contract, you need to have an inspection, get rehab bids, confirm market value, confirm you have multiple exit strategies and make sure you have plenty of equity and cash flow in order to make mistakes and run into surprises and still profit. For rentals, make the property rentable, avoid unneeded upgrades that will not add to the positive cash flow.
- Cherry pick only the best deals – With a lot of deals that fit your criteria coming into your pipeline, you have the advantage of picking only the best.
- Find Great Property Managers and Tenants – Tenant and Property Management issues can result is substantial loses. There is no excuse for poor management, find a good manager and pay them well. Many do it yourselfers try to manage themselves and quickly run the property into the ground. This step is crucial to success and will allow you to generate passive income.
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