It is unfortunate, but most people are speculators. Even media stories are almost always speculative. Is the market up or down? And where is it going? What they don’t tell you is how to be a true real estate investor and control your success. We do not have control over the market, it will go up and down and is always cyclical. However, we can buy at deep discounts, buy with strong cash flow and even add value to a home. Here are ways to avoid gambling on speculation and control your success.
- Buy at deep discounts – Buy at a 70% LTV. A worth 100K you want to purchase for 70K max which includes repairs and any other fees/costs.
- Buy with strong cash flow – If rents are $1500, the max you should pay is $100,000 or rents are 1.5% of purchase. In the best markets you can even find deals where rents are 3%+ of purchase. For example, $1300 rents and total in of $40,000. Rents are over 3% of total purchase.
- Buy in a good area with strong demand from renters and/or homebuyers – Avoid warzone properties. The numbers may look great but they are disasters waiting to happen. Target 1st time home buyer areas and areas that are transitioning in a positive direction. The largest percent of the population fits this demographic so you have the most homes to choose from and the most buyers/renters. Both very good things!
- Have strong and multiple exit strategies – Tremendous equity and cash flow results in the ability to flip, wholesale, sell to an investor, refinance, lease option, buy and hold, etc. Multiple exit strategies afford you the ability to withstand mistakes, surprises and worst case scenarios.
- Buy as an informed decision based on numbers not emotions – Too many investors fall in love with the deal and make their decision because of excitement and emotions. This is a business, not the home you are going to live in. The numbers have to make sense or it is not worth the risk. Make only the best informed business decision based on the numbers.