Make Money in Real Estate
Make money in real estate: What determines success in real estate? Primarily your ability to find a bargain. You need to be able to discern the hidden market value, so you know when to make a move and buy houses at discounted prices.
Make Money Real Estate Strategy 1: Look for anxious sellers
Anxious sellers would be particularly willing to sell their houses at discounted prices. Sometimes, especially when it is a buyers’ market, there are so many anxious sellers that you just have to look to the house next door. The very fact that you have the money gives you a powerful negotiating position. Many people laden with bad debt need money right away – it is in these circumstances where you can find the best discounts.
As Jerry Bresser notes, all sellers want the most money, the quickest sale and the fewest problems. Giving them the quickest sale and the fewest problems would often be good enough. Don’t worry about making offers that are too low – you just have to keep looking until you find that anxious seller.
Make Money in Real Estate Strategy 2: Real estate involves people
This element of real estate offers the most opportunity for profit. Develop excellent negotiating skills! If you have good people skills and can develop a strong working relationship with potential buyers and sellers, you will be able to create bargains almost everywhere you go. Humans are by nature irrational at times; with good people skills, you will be able to make best use of these moments. You don’t buy real estate from the market; you buy real estate from people. Every transaction involves a personal element.
Make Money Real Estate Strategy 3: Sweat Equity
This is how you force an increase in value of the house you are selling. By making physical improvements, undertaking repair works, adding certain amenities to the house, you can often significantly increase the value of the house.
Make Money in Real Estate Strategy 4: Benefit from local developments
Another way to find properties that will increase in value is to locate areas where major urban developments will occur. Road construction, construction of public transport networks, relocation of people – all these developments will tremendously increase the value of the properties in the area. However, do ensure that the source of your information is reliable – local rumors can be greatly misleading, especially on the scheduled timeframe for certain developments.
Make Money Real Estate Strategy 5: Look for the ‘worst house on the block’ in decent neighborhoods
The proverbial worst house on the block is usually the source of good bargains. Most of the time, the main problems with the house are cosmetic. A total makeover for the house, replacing worn out windows, planting trees and shrubs will usually significantly raise the value of the house, with relatively little cost on your part. Make money in real estate by being contrarian!
Make money off real estate: Intrinsic Value
The intrinsic value of a stock is always Warren Buffett’s most important consideration. Similarly, to really make money in real estate, the intrinsic value of real estate should be your most important consideration.
What determines the intrinsic value of a piece of real estate? As Robert Kiyosaki notes, there are four major considerations:
- Income (Cash flow): What is your cash flow after deducting all expenses (mortgage, taxes, and so on)
- Depreciation: This is a form of phantom cash flow. While it appears to be an expense, it is actually an unseen form of income – in the form of a tax break.
- Amortization: As your tenant pays your loan, this creates cash flow.
- Appreciation: This is the form of income most real estate investors would only look at – the capital gains. These real estate investors look to buy and sell, but doing so in fact subjects you to high tax rates. Instead, if you refinance and borrow your appreciation, there is no tax levied. At the same time, your tenant will pay for the amortization of the new loan amount.
In fact, while Warren Buffet may like to buy, he does not like to sell. Because each time he sells, the government earns tax on his sale. Instead, he chooses to buy and hold, thus allowing him to compound his returns without paying the government.
Herein lies to secret to how to make money in real estate: Buy low and hold – unlike the other common investment vehicles, you do not need to rely mainly on capital gains. There are many other sources of income while you let your property gradually appreciate in value.