WHEN YOU WANT TO GO ON A VACATION, one of the first things you do is plan the trip. In real estate, to be a successful investor you need to do the same thing — plan. However, planning alone is not the only skill needed to succeed as a real estate investor.
It is important to know the basics of real estate investing. The old adage location, location, location still holds true to this day. However, location alone does not make or break a piece of real estate.
When investing in real estate, keep in mind that you are paying a premium for one thing — cash flow. The cash flow or income stream you are purchasing must give, or have the potential to give, you the return you need. This leads to the second basic skill you need as a real estate investor — evaluation.
If you are going to be a professional surfer, you have to learn how to read the ocean and waves.
If you are going to be a real estate investor, you need to know how to evaluate a real estate transaction to see if it is a sensible deal. Many successful investors know quickly if they have come across a deal and thus lock it up quickly. Which brings us to the third important investor trait needed — decision making.
Most professional investors have many contacts, specifically real estate brokers/agents. Those same brokers are in the business of selling real estate and will send potential deals to investors who perform and close deals.
When a broker sends over a deal, an investor will evaluate it quickly and decide if they want to move forward. An investor must decide if they want the deal before they can proceed with the next step — negotiating.
A real estate investor once told me that you can always change the financing, but you can never change the purchase price. This is where negotiating becomes one of the most valuable tools in your arsenal as an investor.
Some sellers are motivated by a quick close and willing to take a lower purchase price. It is important to find out what the seller’s motivation is and see if you can negotiate terms and a price that gives you good deal.
Most investors do not go out and put down all of the money on a real estate purchase in cash. Most investors borrow the funds or finance the purchase. Investor financing can take many forms, such as hard money lending.
A hard money lender will lend on the value of the property and an investor can borrow up to 100 percent of the purchase price if the investor is getting a good price. Fortunately, hard money lenders charge a lot of percentage points for a loan with high interest rates.
However, hard money is typically only for a short time and used to close a real estate deal quickly. Most investors will use a hard money lender to close a deal within a matter of days, with the cost of the financing offset by the low purchase price.
Like any profession, real estate investing takes years to perfect. However, the monetary risks involved in real estate investing are enormous and should not be taken lightly.
If you want to become a real estate investor, figure out what type of investing you want to do, have a plan, find the deal, decide, negotiate, put the financing together and close.
MIKE HEAYN is a Washington Mutual Multi- Family Loan Consultant. He (310) 428-1342, or e-mailed at
Originally published in the Santa Monica Daily Press print edition on May 21, 2008. Read the original PDF.