| One of my favorite real estate investing | | | | according to current cash flow, or at least |
| stories is about a man in California who used | | | | they should if they want safe and viable real |
| to just send out offers on a hundred MLS | | | | estate investments, so start by verifying |
| listings at a time. He never looked at the | | | | income. Ask for actual income figures for the |
| properties. He just offered 25% less than the | | | | past 12 months. It's a good idea to think |
| asking price on each one, trusting that the | | | | about the potential income if the rents are |
| listing agents were pricing these homes | | | | raised, or vending machines are added, but |
| somewhere near the actual value, and so | | | | you should base your offer on the current |
| assured that he had a good deal if the seller | | | | income.Fortunately, this can be done by phone |
| accepted.Sometimes a seller would accept his | | | | and by mail. You can also verify all expenses |
| lowball offer. This happens more often when | | | | this way, but if any expenses listed by the |
| you make hundreds of offers instead of just a | | | | seller seem unusually low, they most likely |
| few. Of course, he always included an | | | | are. Substitute your own best guess in place |
| "inspection and approval" clause in the | | | | of any suspicious numbers.Subtract the |
| offer. This is common, and it meant that if | | | | expenses from the gross income to determine |
| the home had real problems, he could back out | | | | the net operating income, then apply the |
| of the deal later without forfeiting his | | | | appropriate capitalization rate to arrive at |
| deposit. In the meantime, he very efficiently | | | | the value. Not sure how to do this? Learn |
| found the truly motivated sellers.My favorite | | | | how, don't just ask someone to do it for you. |
| part about this story, apart from it being | | | | You really should understand the principle of |
| true, is that it demonstrates that success in | | | | how to figure value based on a cap rate. Real |
| real estate investing, as in life, is often | | | | estate investing is all about the |
| just a "numbers" game. Try enough times, and | | | | numbers.Subtract your expected loan payments |
| you are more likely to succeed.The story also | | | | (talk to your banker), from the net operating |
| demonstrates that with a good clause or two | | | | income to see how much cash flow you'll have. |
| in the contract, you don't have to worry | | | | Now you can figure your cash-on-cash return |
| about making an offer before you see a | | | | based on how much of your own money you put |
| property. This is true with buy investment | | | | into the deal. Simply divide the annual cash |
| property or your next home. If you make the | | | | flow by your investment.Do the numbers work? |
| offer in the right way, and the property it | | | | Then you can safely make an offer. The |
| isn't everything the seller says it is, you | | | | various inspections will tell you if there |
| can reject the deal with little or no loss. | | | | are problems that will affect the cash flow, |
| However, why wouldn't you want to look at the | | | | and you can always renegotiate if there are |
| property?Real Estate Investing By The | | | | such problems (assuming you made your |
| NumbersYou might skip looking at a property | | | | approval of all inspections a contingency of |
| before making an offer because of time | | | | your offer). Of course you can go look at the |
| constraints, especially if the property is | | | | property now, but real estate investing is |
| far away. If you can't get it for a price | | | | about the numbers.Steve Gillman writes on all |
| that makes sense, why spend your time | | | | real estate topics. Visit his website for:1. |
| traveling to look at it? A good price and | | | | A photo of a beautiful house he and his wife |
| terms that make sense - these are what is | | | | bought for $17,500. |
| most important.You'll probably want to look | | | | |
| at the actual property eventually, but | | | | 2. A free book on how to save thousands |
| whether or not you see the property before | | | | buying your next home. |
| you make an offer isn't nearly as important | | | | |
| as making sure the numbers make sense. For | | | | 3. A free real estate investing course. |
| example, investors value income property | | | | |