Becoming A Battle Hardened Real Estate Veteran Without All The Scars

Step 1 is always to determine the fair market value(FMV). As a real estate investor, you can always buy properties at the FMV. My question is why would anybody want to do that? Through careful selection, you can always find properties that are priced below FMV, regardless if they are existing or if they are a preconstruction project. The best way to determine FMV is to work with someone already familiar with the area or determine yourself through local websites showing recent sales histories.

Step 2 is to then determine the market trend for the area for which there are two critical pieces: 1) is the average price increasing AND 2) is the volume of sales increasing. If both are moving in your favor, then you have the comfort of knowing that the right trend is in place to keep prices moving forward. In stock market investing, there is the saying that the trend is your friend and traders frequently observe price and volume data to confirm the trend. If a hotly priced real estate market shows signs of dropping in volume, be very careful.

Step 3 is to learn about supply, especially in the preconstruction marketplace. In some areas, there are very few projects on the books and in others, there are 15,000+ units expected to emerge within 1 zipcode, in 1 year. Same is true for investing in houses. In you are competing with a bunch of new houses that are coming on-line, then rapid price escalation may be limited. For most savvy investors, they like to see lots of demand with very little supply which is nothing more than common sense.

Step 4 is to make your OWN opinions of the macro conditions of the local and regional marketplace. So, for example, if you are a strong believer that real estate is overvalued in the target area, why would you ever consider investing? On the other hand, if you believe that market forces will continue to escalate in the market, then why would you not be actively looking? As an example, some people believe that the graying of America is just now starting to drive people to warm, more attractive climates. Even though property values are high in these areas right now, are we going to see 20+ years of additional migration to them? You have to decide for yourself because we won't know the answer for another 20 years!

Step 5 is one of the most important risk management tools available to the investor in real estate. Each property has typically an inherent rate at which it can be rented, even if that is not your intent. By looking at rental rates, relative to the amount of principle, interest, taxes, and insurance (PITI) that you will have to pay, then you can understand the amount of cashflow that may be required to support the property. If your objective is to produce cashflow, then you need to be cashflow positive very quickly. If your objective is capital gains and the cashflow is negative, then you now understand what you may have to support on a monthly basis if things don't work out.

Deferred maintenance then becomes our Step 6. For an existing property, how much maintenance has the previous owner neglected that you will need to catch up? Be careful here since this can be one of the major places to get nasty surprises.

And now I saved the best for last: Step 7 is to determine your own personal risk tolerance. Some new investors look at a deal and only see the positive. This is a huge mistake. EVERY REAL INVESTOR I KNOW HAS LOST MONEY IN A DEAL but they gladly will do more. Why? They understand their risk's going in, they understand how to limit their downside, and the gains are much larger than the risks they are taking. If you were standing beside them and saw what they saw, you would gladly take the risk as well and rapidly ignore any small losses that you experience.

Hopefully this has given you a good start at learning how to analyze a potential opportunity. Obviously each of these steps requires additional work or training but they are what separate the new investor from the seasoned, battle tested veterans.

As part of a new web site that we just launched, http://www.GetPreconstructionDeals.com, I get repeated requests asking if a particular deal is good or not. While we can't answer this for individual projects, we can certainly look at what HAS to get done by the investor to dramatically increase the odds of a successful transaction.

Chris Anderson is a leading authority on preconstruction real estate investing. Get his 4 day e-mail course and a 33 minute video free today! Visit http://www.GetPreconstructionProfit.com & http://www.GetPreconstructionDeals.com.

In addition, Dr. Anderson is the on-line training coordinator at the Van Tharp Institute, a group dedicated to providing world class training for investors and traders.

---

The Art & Science of Property Valuation -- Automated Valuation Models

It is no secret that sellers want to sell high... Read More

A Singles Game of Real Estate

This discussion leans toward answering questions asked most often by... Read More

FSBO - How to Prepare Your House to Sell

Did you hear that? Prices of houses in Phoenix have... Read More

Find Bucks in Yucks! 20-Year-Old Woman Turns Doghouses into Dollars!

Do you dream of making money in real estate? Do... Read More

4 Dangers In Flipping Real Estate

If you have recently purchased some real estate for investment... Read More

Making Money In Real Estate - 10 Ways

Making money in real estate is an endless topic that... Read More

Create a Sizzling Home Sales Flyer

Did you know that the sales flyer is the most... Read More

Should you Sell your Home yourself?

Should you sell your home yourself? Yes and no. Yes,... Read More

Grab Quick Profits As Real Estate Prices Soar

Real estate values rise and fall in cycles. Currently home... Read More

Forclosure And The Durrett Rule

It's probably happened to you...Folks learn that you know something... Read More

Wealth Building ? An Advantage of Home Ownership

As you grow older, the issue of wealth building comes... Read More

Salt Lake City Real Estate

From the mountains to the valley, there are many types... Read More

Do You Speak Real Estate?

Anyone interested in real estate should be able to talk... Read More

Not Everyone is Buying or Selling, Some are Doing Both

As if one real estate transaction is not hectic enough?... Read More

The Sadness of Old Buildings

From the book No Smooshing!For years, I've carried on a... Read More

18 Easy Steps to Buy a Bargain House

What is a "distressed" property? What is "bargain" real estate?A... Read More

Joint Ventures In Real Estate Development; So How Do They Work?

There are many reasons why you would consider joining with... Read More

Buying Property in Portugal

Portugal has long been a popular choice for people, particularly... Read More

Home Inspectors - Negotiating a Lower Price

To help you negotiate a fair sale price for a... Read More

How to Sell Your House For Full Price

Many people believe that a real estate broker is needed... Read More

European Second Home Prices Wilt in Drought

Spain and Portugal have suffered one of their worst droughts... Read More

Beat the Crowd when Investing in Real Estate

We all are thinking about it and some of us... Read More

San Diego Real Estate, Million Dollar Homes

San Diego county has always been known for its Luxury... Read More

Bulgarian Property Market Insight

GOLF GRABS BULGARIA!At the present time there are only three... Read More

Home Staging Strategies

Who are you preparing your home to sell to?You, as... Read More

Buying A Holiday Home in Rural Ireland

Ireland has recently witnessed an upsurge in the number of... Read More

Choosing a Residential Lot

Finding a lotPlanning for your new home is a very... Read More

Fixtures

Fixtures, related to real estate, are items that were originally... Read More

10 Things You Shouldnt Do When Youre Buying a Home

Home Buying Don'tsYour home buying process is well underway. The... Read More

What to Look for in a Home

Searching for just the right home can be very exciting.... Read More

Buying a Newly-Built Home? Ten Benefits of Using a Real Estate Professional

It might not seem necessary to involve a real estate... Read More

Create a Great Webpage to Sell Your Home

The majority of people in the UK who are looking... Read More

Directionals Move Properties

One of the most effective and frequently overlooked methods of... Read More