I made my first real estate investment more than two decades ago. And I’ve continued to seek them out since…
The thrill and chase of a real estate deal, aside from being profitable, can also be a lot of fun. Each venture came with its own learning experiences. And each opportunity presented itself in a different way.
Today, the majority of my investable wealth is in real estate. I own plenty of stocks, too. But I tend to gravitate toward property first.
So today, I’ll share the most important rule I’ve learned through the years.
If you can follow this rule, you’ll have no problem succeeding in real estate.
It sounds easy. But you’d be surprised at just how many folks struggle with it.
Let me explain…
The rule I’m talking about is simple: Don’t pay too much.
This may seem obvious… so obvious that you’re wondering why I bring it up at all. But believe me, overpaying is a trap that’s easy – and I mean EASY – to fall into.
The problem is emotion. Folks get emotional about their stock investments, after all… And real estate is much more tangible. You see it with your eyes and touch it with your hands.
Emotions can run wild… and trick you into making bad decisions.
Without realizing it, you can fall in love with a particular property. That leads to a willingness to pay any price. And overpaying is the easiest way to get into trouble in real estate.
If you’re not buying for investment purposes, it’s a different story… Your home, in my opinion, is more about living than it is about making an investment. Buy the home you actually want to spend time in. That’s fine.
But investment real estate is different…
You can’t fall in love with an investment property. You’ve got to seek out deals. Getting at least a 10% discount to true market value is key. And that’s after estimated closing and renovation costs.
To get a grip on true market value, look at similar sales in the area. Figure out the typical sale price for a given home based on price-per-square foot.
Not every home is identical, of course… Remodels and amenities can alter numbers. But if you look at 20 or 30 recent sales, a trend will emerge. Make sure you’re buying at a discount to that price.
I’ve had a lot of success buying homes this way. Over the years, I’ve been fortunate enough to buy at discounts of about 20% to the market.
That sounds easy on the surface… Buy stuff cheap and the rest works out. But I know what you’re wondering…
How’d I actually do it? How do you get from cheap prices on paper… to successful deals in reality?
I believe these were the three keys for me:
- I was willing to walk away from the deal (it didn’t have to be THAT house).
- The houses I bought showed terribly, but were fine structurally.
- The sellers lived out of state and didn’t have a strong emotional attachment.
Ultimately, the point is, don’t ever overpay.
There are plenty of properties to choose from. Don’t fall in love with any of them. If you do, your emotions could take over and cause you to make a foolish mistake.
Also, be willing to consider properties that look ugly… but that you can easily shine up. That’s a great way to find fantastic value.
I’ve done this myself with great success. And if you follow this rule – and have some patience – I’m sure you can too.
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Source: Daily Wealth