Real Estate Investors must master a number of skills in order to be successful. While riding my bike on the beach with my daughter yesterday, I thought of a simple, easy and powerful way for all real estate investors to sharpen one particular skill that must be mastered if they ever want to have lasting success. Once mastered, this skill could be the key real estate investors have been longing for to unlock vast amounts of wealth from real estate. And that skill is...(drum roll)
"How to Value Real Estate (Knowing How Much a Property Will Sell or Rent For)"
One of the many beauties of real estate is that understanding what a property will sell or rent for is not a game of chance. In almost every case, real estate investors can know with a very high degree of certainty what a property will sell or rent for before they ever buy. To keep this as simple as possible, the focus will be on residential real estate for this illustration.
Here is a incredibly simple, strikingly easy, yet very powerful way for real estate investors to sharpen their ability to value real estate:
Step # 1 - Walk, jog or bike ride around your neighborhood. This should be done every few days, daily being best (judging by the statistics, most Americans need more low impact exercise anyway). Criss-cross and go down different streets so that you cover at least 1 square mile around your place of residence over the course of every few weeks or so.
Step # 2 - Jot down every Agent For Sale sign, For Sale By Owner sign and For Rent sign you see. Keep the list on your phone, or a notepad, or whatever place is easiest for you. Only get the most critical data on each one:
- List Price (or Rental Rate)
- Square Footage
For listed properties, you may be able to find this information on the MLS. If you don't have MLS access, that's a major issue you will need to get worked out. Being a real estate investor and not having MLS access (either directly or through a licensed agent), would be like riding a bike blindfolded; dangerous to you and others, not to mention the fact that eventually you'll crash. Fortunately, if you live in metropolitan area served by Redfin, your MLS problem is solved. Also, you may be able to get away with simply searching the address on Google to get the data these days.
Step # 3 - Review the sales price or rental rate for each property and then compare to square footage as well as the number of bedrooms and bathrooms. Ask yourself, "Which ones are the best deals right now? Which ones are the worst? Then, and here is the important part, put an educated guess next to each one with what you think each property will sell or rent for. When doing this, think in your mind that you would be telling your friend, "How much you wanna bet that house goes for...", or, "I'll bet that house will sit vacant month after month until that landlord drops his/her rental rate."
Step # 4 - Watch over time to see how close your guesses are to what really happens in the real world. What makes this strategy so incredibly powerful is that you get to see with your own eyes (not just on a spreadsheet or computer screen), what each property actually sells or rents for. It makes learning how to value real estate so much easier when you can see and touch the results. Also, you'll notice how certain attributes like pools, garages, corner lots, cul-de-sac lots, brick exteriors and so many other factors all play a role in the desirability of the property. In some areas, people prefer pools while in others, people run from properties with pools. While garages are usually a desirable part of a home, in some neighborhoods, garages are converted to bonus rooms. Seeing what the market likes better; a two car garage or a bonus room, is very interesting and very much area specific. After a good period of time, when new properties hit the market, you'll know almost to the exact amount as to what the property will sell or rent for.
Take action on these easy 4 steps, whether beginner or experienced, and you'll be a better real estate investor than you were before.
But Wait! There's more...
Real estate investors may actually stumble across a motivated seller while participating in this 4 step process! Yes, it's true, there are property owners near you that may need to get rid of their property quickly. So while you are learning, you can be earning money as well by helping motivated sellers in your area.
Some real estate investors don't agree that there are diamonds in their own backyard, though. Many new (or struggling) investors I come in contact with think the grass is always greener on the other side and that, "it doesn't work in my area." These people get more and more creative every year with their reasons, too. Nowadays, they come at me with reasons such as, "No, in my city/state/community, you can't do that, it's illegal." To which I usually turn one eyebrow up and ask, "It's illegal to buy real estate and then re-sell it for a profit? It's illegal to lease real estate to a tenant? Really? Are you kidding me? Seriously?" Meanwhile, unbeknown to this person, I have a student in that area that just closed a deal and made tens of thousands in the exact same place where the person tried to convince me, "it doesn't work in my area." What I really want to say to real estate investors who say that (although I am too kind to do so) is; the only thing not working in your area is you!
(I may have ruffled some feathers with that last comment, but in many cases, it's true.)
Back to positive talk...real estate investors must master how to value real estate (knowing how much a property will sell or rent for) and in this post, real estate investors have a simple, easy and powerful way to sharpen that skill.