Real Estate Investing Advice

Ill tell you. Getting started in real estate investing can be scary, very scary. It has been one of the scariest things I have encountered. It was hard for me to step out of my comfort zone to make something happen. That is key. You have to step out of your comfort zone and do it. Don’t worry about the bad things that might happen. I had to think about the positive things that would happen. More money. More money makes life easier. It was always something that I worried about, making sure I had enough money to take care of my family.

If you can think more about the positive than the negative, it makes the transition to being a real estate investor easier. After a few deals it becomes normal and you start kicking yourself that you didn’t jump out and do it sooner.

Also, preparation will help as well. Get your team of professionals together. Get your real estate expert with you, get your attorney. Once you have your support system set up, things get easier.

Look at as many financial situations as you can. Think about problems that might occur when buying investment property. Be extremely conservative in your budgeting initially. All of these things can help you get starting in property investment.

Finding the property value
As a real estate investor, your ultimate goal is to make money. that’s simple. You want to learn how to buy property at the right price. You don’t want to overpay. You cannot guarantee that this won’t happen. But you can try.

Appraisals
Appraisals are keys to this. Real estate appraisals are not set in stone. They are basically an educated guess. They do give you a good idea on the true value or fair market value of your potential investment property is worth.

There are different types of appraisals. You have a comparative market analysis, reproduction cost and capitalization of income approaches.

Comparative market analysis
Comparative market analysis is probably the most well known appraisal approach. Most people just call them “comps”. basically you look at similar properties in the same area to see what their prices were at the point of sale. There are lots of factors to consider however. Factors such as the age of the property, the square footage, how long ago the property sold, and others. If you can find a property that closely resembles yours, then you have a good idea of how much you should be paying for that investment property.

I have used this approach many times. Most investors do. This is probably the preferred appraisal approach.

Reproduction cost appraisal
I am no expert on the reproduction cost approach. Basically this is appraisal is based on what it would cost to build the property at today’s prices. You try to figure out the value of the land by checking in the same area for lots that are for sale and using those prices. This part is kind of like the comp analysis I mentioned above. You then have to figure out square footage of the home or building and the costs of materials to produce a building of that size. It is more complicated than I have explained it. This approach is more detailed than a comp analysis.

Capitalization of income appraisal
I don’t know a lot about capitalization of income either. This approach deals more with how much money you will make on the property. I don’t know many investors that use this type of appraisal. There are equations involved here, dealing with capitalization rates. Capitalization rates tell you how much money you would make if you paid cash for it. It sounds complicated and I will try and go into more detail later.

Which method of appraisal should I use?
Well that is up to you. All of them have their pros and their cons. Choose what you are most comfortable with. It never hurts to discuss this with your real estate investment team.

Use these appraisal methods to help you make your offer on the property. Use these methods as reasons for your offer. If you give the seller your reason as to why your offer was lower than what they want, they are less likely to be offended and will do more to consider your offer.