1
– Understand Your Market’s Economy
The
real estate bubble “burst” over five years ago, but we’re still feeling its
effects today. While the Nation’s poor economic health has created problems we
all share, local areas also have their own economies. Understanding the local
economy and how it influences the real estate market is essential to your
success.
What
is the economic climate for the areas in which you are investing? For example,
a recent look at the seasonally adjusted unemployment rates for each of the
states sees a swing of more than 9%. In other words, while things are tough,
they’re not tough all over. What is the job market like in your area? Are
people having a hard time making ends meet and needing to find affordable
housing? Or, have people weathered the storm and are now ready to get back into
home ownership?
From
unemployment to the amount of foreclosure activity, the circumstances across
the country can be as different as night and day. Your job is to understand
your market’s economy in detail and conclude why it is what it is. Only by
understanding the economy in your market will you be able to understand why
things are the way they are and have a plan in place to capitalize on it.
2
– Recognize Influencers
If
Key #1 is looking back at what has happened and what is, then Key #2 is looking
forward and predicting what will be. Identifying influencers that affect your
market posi- tively or negatively coupled with your economic research can help
you see opportunities before others do.
While
store closings have made the headlines in the past, the truth is many
businesses are poised to expand. New shopping centers can be extremely
attractive to home buy- ers. Finding these new developments is often as simple
as taking a different route to your regular destinations and taking note of
what you see out the car window as you drive by. If you see signs of land being
cleared, surveying or the beginnings of construction in and around major
roadways, it is a pretty safe bet that a new influx is coming into the
community. Any changes designed to handle increased traffic flow can tip you
off to new developments, too. Widening traffic lanes and installing new traffic
lights are just a couple of telltale signs.
2 © 2013 Professional
Education Institute and CASHFLOW Technologies, Inc.5 Keys to Increase Your
Wealth
Also,
getting to know those who work in the road and building departments for your
city or county—or at the very least, attending city planning meetings —can make
you aware of significant projects being proposed or scheduled to begin.
Key
#3 – Know What Realistic Pricing Is
Most
real estate agents will tell you one of the biggest frustrations they face is
people thinking their home is worth more than it actually is. Perhaps it is
people not wanting to come to grips with the equity lost in the downturn or
just being naive. Whatever the case may be, it doesn’t matter. You need to know
what a realistic price is for the current market. Not what their home appraised
at a few years ago, when they took out a second mortgage, but what it is today.
As
you begin, you’ll want to be sure that you are comparing “apples to apples.” In
other words, year built, square footage, number of bedrooms, lot size, etc.
Should all be com- parable. Take special note if home prices are accelerating
faster in one area than in oth- ers. What might be the cause for this? Is there
anything from your research in Keys #1 or #2 that could provide a clue? Also,
you will want to check the average home price in neighboring communities to see
whether it is higher or lower. Doing so will provide you an idea of where the
biggest demand is.
The
more you study pricing, the quicker you’ll be able to recognize a bargain or
when a seller has lost touch with reality. Realtors and real estate agents are
a terrific source for pricing trends given their access to the Multiple Listing
Service (MLS). Also, the Internet and local newspapers can be helpful in your
search.
Key
#4 – Determine an After-Repair Value
All
your efforts to determine a realistic price for your market will be for naught
if you pay a price that causes you to lose money once everything is said and
done. You need to know what a reasonable offer for the seller is while still
allowing yourself to create an acceptable return for your time and effort. This
amount will be your Maximum Allowable Offer (MAO). If the seller cannot meet
you at or below the MAO, then the deal does not make sense and you should walk
away.
Key
#5 – Use Tax Benefits to Your Advantage
Over
the last few years, the U.S. Government has gone to great lengths to help jump
start the economy. By changing the tax code, the Government incentivises people
to do what the Government thinks will help the economy grow. Because of these
incentives,
$100,000 x .7
= $70,000
$70,000 - $5,000
= $65,000
(After
Repair Value or market value) (20% Profit and 10% for Closing & Holding
Costs)
(Repair
Cost Estimate)
(Maximum
Allowable Offer to your seller)
4 © 2013 Professional Education Institute and
CASHFLOW Technologies, Inc.5 Keys to Increase Your Wealth
real
estate investing can create tremendous tax advantages. In fact, even before the
downturn, several provisions of the U.S. tax code were written with the
specific purpose of encouraging real estate development and investing.
Government legislators know that America needs an ever-expanding supply of
decent and affordable housing, and that the government itself is poorly
equipped to provide it.
You have to know how to play the game. You’ll
need to hire a savvy tax accountant or other real estate investment advisors.
They will introduce you to the concepts and calcu- lations that you need to
know to begin asking the right questions.
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