The #1 Real Estate Secret, Part II
WHY ARE YOU REALLY BUYING REAL ESTATE?
Many Super Successful investors have specific criteria regarding (at least) three major criteria when buying: financial requirements, property condition requirements, and tenant base operations. Before we discuss these items, there are a number of “know thyself” questions that are sometimes less tangible and harder to define.
For example, the simple question: “Why are you buying investment real estate?” can have complicated answers. I hear a range of responses, examples are:
-“My grandparents/parents/relatives told me to invest in real estate”
-“I heard real estate is the best investment for retirement”
-“I want cash flow”
-“Real estate is too expensive in California so I want to invest in Oregon”
-“I want to avoid paying capital gains taxes on my sale”
-“I do not trust the stock market and I do not know where else to invest”
UNDERSTAND YOUR “REAL” INVESTING GOAL
There are variations of all these answers, but those sum up a lot of the responses I see. Why are you interested in buying real estate? Do you have a true understanding of why you want to invest in real estate? While you may not have a “deeper meaning” for buying real estate other than “making money”, taking some time to figure out your motivations may help you find (and create) the right properties to buy for you.
For example, I worked with a couple named Dave and Diane* who were coming upon their retirement years. We discussed their situation, and over the course of a few meetings (about a year total) they decided they wanted to sell their smaller plex and complete a 1031 exchange into a larger apartment complex. They had many conversations as a couple about what they wanted, and it turned out they wanted to increase their cash flow while decreasing their financial risk.
Right before closing their smaller property, the buyer requested a discount from the sellers for repairs. Even though the sellers had backup offers, the sellers asked themselves: “what is the best way to achieve our goal of increasing cash flow and decreasing risk?” They decided to provide a minor price reduction to the buyer because that was the most efficient way for them (at the time) to obtain their goal of selling and reinvesting.
After the seller decided to reduce the price, he told me if he was not clear on his goals the situation would have been very difficult for him. It turned out to be “easy” for the seller, because he worked hard with his wife before the situation to gain tremendous clarity on who they were and what they wanted.
To help you in this process, here are some questions to ponder prior to searching for properties to buy:
-What do you want?
-What are your specific goals?
-What are my financial goals with an investment property?
-Do I want: turnkey properties, rehab properties, “middle of the road” properties? Something else?
-Regarding real estate investments, what am I “good” at? What am I “bad” at? Or, switch the question to: “What do I have experience with in investment real estate?”
-Am I willing to ask for help from the “experts”?
These questions are a good start! I recommend finding a local broker who has the experience you need to help you in this investment process, which could save you a tremendous amount of time and money.
*De Lubicz, Isha Schwaller; Lamy, Lucie (1978). Her-Bak: Egyptian Initiate. Inner Traditions International via Wikipedia.
