Are You Ready for a Good Deal?
What constitutes a good deal to you?
â€œI'll know it when I see it, you say. Well, maybe you think you are in the market for a good deal, but you just told me that you are not. What?! Well, do you have a list of what fits in your criteria for a good deal? Do you know what your numbers are for purchasing, monthly expenses, possible repairs? Do you have your financing lined up and your investment money ready? Whether you plan to buy your primary residence or an investment property, you need to have worked out a number of issues before you're ready to look for a good deal.
Right now, we are in the best market for finding a deal that we have experienced in probably 12 years. This doesn't mean that prices are at 1997 levels, but that there are affordable properties available to buy that can make real financial sense in terms of potential for equity building as well as immediate neutral to positive cash flow on your investment.
For example: A property with two 2-bedroom, 1-bath houses on a street-to-street lot in a decent neighborhood of Eagle Rock listed for $269,900. If you put 25% down, even at under-market rents of $800 each, you could have immediate positive cash flow plus real potential for appreciation over time. If you want to live on the property as your primary residence, you can use FHA financing and purchase with as little as 3.5% down! I don't know if you've been able to buy a deal like this since they changed the tax law in 1987! And this property was a good owner-occupied candidate with privacy for both unitsâ€”it even had separate yards. Wow, does that sound like a deal? Sign me up, let me go talk to my lender.
Nope. Too late. That place had 6 offers within 4 days and is in escrow. And it took that long only because the tenant was uncooperative about showing any other day than Saturday.
If you are looking for a good deal, you must be ready to jump on it right away with no hesitation. Here is your list of what it takes to be ready:
- Financing: You must be prepared with a pre-approval letter, documentation of your down payment, A liquid funds available for a deposit, and very likely with a copy of your credit score. Pushy, huh? Invasive, eh? Well, that is what these foreclosing bank sellers of great deals want to see from you, because they know how they got into this mess.
- You must be open to doing whatever you need to do to get your offer accepted.
A. That might mean you make an offer without seeing all of the property. With tenant-occupied properties, you often can't see inside them unless you have an accepted offer. Think about it, the tenant has no incentive to cooperate with people coming through their home. All they see is a good chance they'll have to move or at least to have their rent raised. Why should they make it easy for you? The odds are good you won't buy the property and they will have been inconvenienced for nothing. You will see the entire property when you do inspections, so don't stress out about it. This tenant-showing subject deserves an article of its own, so look for that soon.
B. You might need to reduce or remove all your contingency periods up front. A harrowing idea, but some lenders are beginning to require this because they are overwhelmed with offers. How can you make this work for you? You might need to go so far as to do an inspection before you know that you have the deal. Is it worth $500 or $600 to make sure that your sewer line isn't crumbled and rusted away under that driveway, or that the systems are safe enough to make the house habitable?
C. Most important, you must be able to act instantly. If there are two or more partners going into this deal, the ideal plan is to assign one person to be the ultimate decision maker, even to the point of giving them a real estate power of attorney to sign for all the parties. Don't you trust that person? Then why are you thinking you're going to invest with them? If you want to have Mom and Dad approve your purchase, you should have them come with you to look at the property first. There is no time to line up a viewing next weekend for them. If it's a good deal, it may well be gone. That's part of it being a good deal!
There is a series of excellent books you should read about real estate, written with Gary Keller, one of the creators of Keller Williams Realty. I'm not interested in their real estate brokerage model, but this guy has co-written some really excellent, knowledgeable books for Realtors, investors, and even one for first time buyers. Shift just came out this year and is right on for understanding and profiting from the current market. Your First Home is forâ€”you guessed itâ€”first time buyers. The Millionaire Real Estate Investor was published in 2005, so don't take the easy financing ideas seriously, most of them are history. But the fundamentals of investing are quite good. I do have some thoughts on some of the concepts, such as always buying 10-20% below the current market. In Los Angeles, some of these rules just don't apply, but the eventual increase in equity will more than counterbalance that. Yes, even with the economy crashing down around us, I believe that.
You can go to the website, www.millionairesystems.com, click on the Free Downloads, and access worksheets that will help you organize yourself and help you plan how to accomplish your goals. Give them a try and then maybe you really are ready to find a good deal.