Real estate investing has been around in various forms since mankind switched from being a nomad to farming the land. Certainly there are real estate investing techniques that all of us can learn from those that came before us. Here are five of the better real estate investing techniques that work today.
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- If you're investing in rental houses, the best place to buy property is in lower to middle income properties on the fringe of good neighborhoods. These properties typically sell for about half of the cost of similar properties in the bordering better neighborhood. On top of that discount, a diligent investor will find properties selling for a 20% discount to market value. However, rents are typically about the same for both neighborhoods. This means the less costly house delivers twice the return on investment or more.
- There is a huge difference between real estate speculating and real estate investing. Real estate speculating is buying a property and hoping it goes up in value. A speculator might buy a strip mall on a street planned to be widened and have a freeway access ramp added. Investing before the road project is started means an almost certain large increase in value once the project is completed. However, if the project is cancelled or altered it means no profit from the investment. On the other hand, investing in proven cash flow properties will always bring in profits. Investing in middle to lower income properties are more or less assured of staying rented under any economic condition. During economic down turns, middle class families move down to lower cost properties to reduce the rent payment. During good economic times, lower class families move up to better houses.
- Always leverage the security deposit in your favor as an investor. The biggest risk with lower to middle income properties is damage or unpaid rents that cost you money instead of delivering a profit. By requiring a high security deposit and carefully vetting your renters, you can greatly reduce your exposure to property damage and unpaid rents. Higher security deposits will limit the number of both lower income and middle income families that qualify. You want to collect as much of the security deposit up front as possible and then allow a couple of installment payments in the first few months of the lease to well qualified renters.
- One secret to finding good tenants is going where most landlords don't go. Rent to families that have kids and pets. Most landlords turn these tenants away out of fear there will be more wear and tear on the property. However, people with families and pets tend to be more responsible and take better care of the house. They also tend to be long term tenants because they know they will have trouble finding another landlord willing to accept them. Also, these renters expect to pay a higher security deposit to secure your house.
- Communication is a key skill in real estate investing. You negotiate purchases and you negotiate sales. You screen tenants and negotiate leases. You negotiate with contractors and trades people. There is a lot of communication in the real estate investment game. We've all done it. Starting to formulate a response to someone while he or she is still talking to you. Obviously, that is the wrong approach. You need to first seek to understand and then to be understood. You should be working towards win-win solutions at all times. You solve someone else's problem to make your own financial gain. This is best accomplished by listening carefully to what others are saying. To their words, their body language, and their facial expressions. This is how you learn what is the most important to them and you use that to your advantage to craft a win-win deal.
Please leave a comment if this article was helpful or if you have a question.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.
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