Becoming A Battle Hardened Real Estate Veteran Without All The Scars

Step 1 is always to determine the fair market value(FMV). As a real estate investor, you can always buy properties at the FMV. My question is why would anybody want to do that? Through careful selection, you can always find properties that are priced below FMV, regardless if they are existing or if they are a preconstruction project. The best way to determine FMV is to work with someone already familiar with the area or determine yourself through local websites showing recent sales histories.

Step 2 is to then determine the market trend for the area for which there are two critical pieces: 1) is the average price increasing AND 2) is the volume of sales increasing. If both are moving in your favor, then you have the comfort of knowing that the right trend is in place to keep prices moving forward. In stock market investing, there is the saying that the trend is your friend and traders frequently observe price and volume data to confirm the trend. If a hotly priced real estate market shows signs of dropping in volume, be very careful.

Step 3 is to learn about supply, especially in the preconstruction marketplace. In some areas, there are very few projects on the books and in others, there are 15,000+ units expected to emerge within 1 zipcode, in 1 year. Same is true for investing in houses. In you are competing with a bunch of new houses that are coming on-line, then rapid price escalation may be limited. For most savvy investors, they like to see lots of demand with very little supply which is nothing more than common sense.

Step 4 is to make your OWN opinions of the macro conditions of the local and regional marketplace. So, for example, if you are a strong believer that real estate is overvalued in the target area, why would you ever consider investing? On the other hand, if you believe that market forces will continue to escalate in the market, then why would you not be actively looking? As an example, some people believe that the graying of America is just now starting to drive people to warm, more attractive climates. Even though property values are high in these areas right now, are we going to see 20+ years of additional migration to them? You have to decide for yourself because we won't know the answer for another 20 years!

Step 5 is one of the most important risk management tools available to the investor in real estate. Each property has typically an inherent rate at which it can be rented, even if that is not your intent. By looking at rental rates, relative to the amount of principle, interest, taxes, and insurance (PITI) that you will have to pay, then you can understand the amount of cashflow that may be required to support the property. If your objective is to produce cashflow, then you need to be cashflow positive very quickly. If your objective is capital gains and the cashflow is negative, then you now understand what you may have to support on a monthly basis if things don't work out.

Deferred maintenance then becomes our Step 6. For an existing property, how much maintenance has the previous owner neglected that you will need to catch up? Be careful here since this can be one of the major places to get nasty surprises.

And now I saved the best for last: Step 7 is to determine your own personal risk tolerance. Some new investors look at a deal and only see the positive. This is a huge mistake. EVERY REAL INVESTOR I KNOW HAS LOST MONEY IN A DEAL but they gladly will do more. Why? They understand their risk's going in, they understand how to limit their downside, and the gains are much larger than the risks they are taking. If you were standing beside them and saw what they saw, you would gladly take the risk as well and rapidly ignore any small losses that you experience.

Hopefully this has given you a good start at learning how to analyze a potential opportunity. Obviously each of these steps requires additional work or training but they are what separate the new investor from the seasoned, battle tested veterans.

As part of a new web site that we just launched, http://www.GetPreconstructionDeals.com, I get repeated requests asking if a particular deal is good or not. While we can't answer this for individual projects, we can certainly look at what HAS to get done by the investor to dramatically increase the odds of a successful transaction.

Chris Anderson is a leading authority on preconstruction real estate investing. Get his 4 day e-mail course and a 33 minute video free today! Visit http://www.GetPreconstructionProfit.com & http://www.GetPreconstructionDeals.com.

In addition, Dr. Anderson is the on-line training coordinator at the Van Tharp Institute, a group dedicated to providing world class training for investors and traders.

---

Real Estate Web Design - 3 Items You Must Include on Your Site

Real estate web design requires you to do things a... Read More

Getting Started in Real Estate Foreclosure Investing

Decide to Invest in Real Estate Foreclosure InvestingWith the increase... Read More

How to Make the Real Estate Market Work For You and Get The Most Money

How to make the Real Estate market work for you... Read More

I Believe God Wants Me To Tell All In Real Estate

After years of experience in the real estate industry I... Read More

Landlords Dance The FICO Fandango

Fair Isaac Corporation is the creator of the FICO credit... Read More

Get To Know About Building Codes & Town Planning Applications, If You Want To Build A House

These are real building questions that I received from readers... Read More

Buying and Selling Real Estate: Negotiating to Win-Win

You don't get what you deserve - you get what... Read More

How Do I Fix Up a Home to Sell?

The first thing you need to do is stop thinking... Read More

For Sale By Owner: The Inside Scoop On Selling Your Own Home

If you're thinking about selling your home perhaps the 'for... Read More

How to Make Money in Real Estate Without Doing the Scrunch Work

If you don't have the time to invest working on... Read More

Finding A Capable Agent To Meet Your Real Estate Needs

Whether you're a first-time buyer, selling your current home or... Read More

Investment Concerns for Selling Your Home

Besides the emotional upheaval of uprooting from your home, your... Read More

Real Estate Investing Contracts on Toilet Paper

Even if your real estate contract has been written on... Read More

What To Expect From Your House Appraisal

Having your house appraised can be a scary step in... Read More

A Simple Step by Step Aproach to Fail Your Way to a Million Dollars

If You want to be Financially Successful you need to... Read More

Property Investing Secrets 6

Property Investing Secrets:What No One Ever Tells You-How Real Estate... Read More

Selling by Owner Escrow or Closing Checklist

Home sellers should keep on top of their pending sale;... Read More

The Secret Jewel in the Mediterranean Crown

Since the Northern Cypriots famously voted 'yes' to the UN... Read More

Tenants in Common (TIC)

Tenants in Common is a way of sharing ownership of... Read More

Florida Real Estate Exploding For 15+ More Years?

YEEHAW!!!!!! The south will rise again!! Can't you just imagine... Read More

What is a Loft Apartment?

What is a loft apartment? At the most basic level... Read More

Top 7 Reasons Why FSBOs Fail To Sell Their Home On Their Own!

In the United States, less than 10% of all For... Read More

If You are Hiring a Neighborhood Specialist to Sell Your Home, there are Some Things You Absolutely

My husband and I were eating breakfast at the Good... Read More

Why Mobile Homes?

There are mobile homes for sale, for much less than... Read More

What Should I Do If My Home Isnt Selling?

Suppose you've been trying to sell your home for months.... Read More

Property Investing Secrets 5

Property Investing Secrets:How To Work With Agents And Get What... Read More

Finding a Great Listing Agent for Your Home: 8 Tips

If you've decided to list your home, you'll be paying... Read More

Real Estate Investing - Makeovers vs. Flipping

Please don't call it "flipping."Some real estate investors who practice... Read More

Sell Houses Fast & Top Dollar: Design Psychology

How would you like to start a bidding war for... Read More

Real Estate Investment 2005 - The Hottest Countries for Investment in 2005

Whether you are a real estate investor looking for a... Read More

Renting Versus Buying A Home

Renters are often in a quandary as to whether it... Read More

Buying Houses at Discount Prices

Buying a house is the best way you can create... Read More

Vegas: The New Frontier

Unless you have been living in Siberia, you know that... Read More