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