Learn To Be Rich

When I usually discuss the benefits of investing in real estate I typically discuss six major things including income, depreciation, equity build-up, appreciation, leverage and the topic of today’s article: control.

I remember Dr. Dolf De Roos talking about this concept in his book “Real Estate Riches” and how much it resonated with me. As he explains, he talks about the difference between buying a stock and buying a rental property. When buying a stock, there is very little you can personally do to improve the return you could get from that stock. Besides tell all your friends to drink brand X or consume brand Y products, there is little you can do to make that company more profitable and affect your own return from buying that stock.

However, that is NOT true with buying a rental property. You do have a say on what you do with the property and that can have a huge impact on how well your property performs. Paint the property, it might sell for more. Concert a study to a bedroom and increase the rent you can get. Add a garage and charge extra for it. Refinance to a lower interest rate to increase cash flow when interest rates dip. Hire or become a better property manager and see fewer vacancies and more on-time payments. All these things and more affect how well your property performs and that is why control over the asset is a huge benefit of real estate investing.

Until my next post,

James

I was talking to a real estate investor client earlier today about a deal he is considering and I was reminded that real estate investing is a numbers game.

The chance of going out and finding an awesome deal the first day you are looking for properties is pretty slim; it usually does not happen. On the other hand, amazing deals come along every single week.

So, if you are considering getting involved as a real estate investor and want to get an idea of the number of real estate deals you will need to look at or evaluate before you find a great deal, then continue to read because I am going to cover exactly that.

First, there are several different ways to find great real estate deals and some are more effective than others and for very good reason. Allow me to illustrate this with a rather absurd example.

Let’s assume for a moment that you were looking for real estate deals and that you decided to do so by placing a classified ad in the newspaper. By running an ad that says, “We Buy Homes Full Price,” you are bound to get a ton of calls. You’d probably look at hundreds of houses to have a chance of finding an OK deal. So, if you were to look at that, you might think you need to look at hundreds of houses to find a good deal, but that’s not completely true. Consider this alternative.

What if you ran a classified ad that read, “We Buy Homes 50% of Value Cash, Any Condition”? Can you see that you would get far fewer, if any, calls, but that the calls you got would likely be great deals? With that ad you might think I look at one or two houses and find a great deal.

So, when we look at the numbers of finding great deals, we need to look at exactly how we are finding the deals and since I do not know the exact marketing or strategies you are employing and your exact market I can’t give you extremely accurate numbers, but I can share with you some general rules to give you a rough idea. And here they are…

If you are looking for properties with a real estate agent or broker in the Multiple Listing Service, it has been my experience and the experience of many other real estate investor gurus that you need to look at approximately 100 houses to find a deal. Dolf De Roos in the book “Real Estate Riches” has, what he refers to as, his 100:10:3:1 rule which to summarize says that you need to look at 100 houses, to make offers on 10 and get 3 accepted to finally close on 1. In other words, look at 100 to buy 1.

However, the 100 to 1 rule is really for looking at properties for sale by agents or calling about properties for sale. If you are putting out marketing to find motivated sellers, the numbers tend to be significantly better. I have found that, depending on how you are buying, you are probably more in the range of looking at 10 to 20 properties to buy 1 when you are putting out marketing and having sellers call you.

So, hopefully, that will help you get a better understanding of how finding deals is a numbers game and help you stay motivated once you’ve spent 8 weekends looking at 80 properties and have not bought one yet. It takes time and looking at a lot of potential houses to find a deal.

Until my next post,

James