Thanks to low interest rates and increasing rental rates, my husband and I are enjoying more cash flow from our rental properties than ever before. Sure, our properties aren’t worth quite as much as they were last year. But they are still making us money. And because we purchased in desirable areas, we know they will increase in value over time.
And we aren’t the only ones making money with real estate today. Jeff Adams works full-time as a firefighter… but his part-time job as a real-estate investor has made him the nation’s leading expert in finding motivated sellers, hungry buyers, and private lenders. He’s made over 350 deals since 1995, just working part-time!
Marko Rubel left his corporate career a few years ago, and today, after several hundred successful transactions, his real estate holdings are estimated to be in excess of $4 to $5 million. And Dave Lindahl – who started out as a dead-broke landscaper with no real estate experience – now owns 5,136 units.
Despite massive profit opportunities in the real estate market, people are more afraid of buying property today than they were two years ago. Most think the best strategy is to wait. I regularly receive reader e-mails saying they want to overcome their fear of buying property right now – but they likely won’t. And until I read Influence: The Psychology of Persuasion
by Dr. Robert B. Cialdini, I didn’t really understand why.
Cialdini spends an entire chapter on Social Proof. He explains it as something that happens when we use the actions of others to decide what is right for us in a given situation. The more we see other people doing something, the more correct we feel that action to be – especially when we view those people as similar to ourselves. You might have heard this called “herd mentality” or “group think.”
If you are interested in buying real estate, it’s absolutely vital to understand this concept. Social proof is most powerful when we are uncertain – and right now, nobody is certain. With the media constantly talking about foreclosures, job losses, price drops, and company bankruptcies, uncertainty will continue to grow.
There aren’t many people telling positive real estate stories these days, so there isn’t much social proof to encourage anyone to buy. But as powerful as social proof may be, the truth is that often the majority is not right. And because the “herd” is currently steering clear of real estate, that means there are tremendous opportunities for people who are investing.
Isn’t it always better to be shopping for something when nobody else wants it? You get better prices, better selection, more control. All these benefits apply to the real estate market right now.
So, how do you overcome the power of social proof and the psychological pressure to do as everyone else is doing? How do you go against the crowd and find those opportunities others can’t see?
It’s simple. You follow a proven, repeatable process – and you use the same process every time you look for and buy a property.
When we were just starting out in real estate, my husband and I wasted time (and money) chasing the hottest strategy of the moment, from foreclosures to flips to no-money-down deals. But we’ve settled on a simple, easy-to-replicate, five-step method of finding and buying properties that takes emotion out of the equation.
Step 1. Set Your Goals
Where are you today as a real estate investor? Where do you want to be long-term? As I said in “The Problem With Fire,” you have to consider the time, money, and skills you have to invest in the outcome you want. Then you determine where the gaps are, and fill in.
No background in real estate? Head to the library to read up on real estate terms and trends. Looking for help with the marketing side of your business? Pick up a home-study program. No time to deal with tenants? Look into a management firm.
Once you know what you need and how to get it, you can make a plan to move from today to tomorrow.
Step 2. Research the Markets
Look for places where you can find properties that meet your investment goals. I like Justin Ford’s suggestion to look for markets that have potential for value and for growth.
This step takes some work, and this is where people often start chasing hot tips and hot markets. That’s a mistake. Do your own research. The clarity that comes with becoming knowledgeable about an area will give you the power and confidence you will need to move forward.
Step 3. Find a Property
The trick to finding a property is to let people in your “finder” network (realtors, brokers, etc.) know exactly what you are looking for. If all you say to them is “I want to buy a property,” they will either send you everything or they will send you nothing. Be specific. For example, “I am looking for a duplex or a triplex in the Pinewood neighborhood that has a motivated seller.”
Meanwhile, you need to know what other duplexes and triplexes are selling for in that area and why. If you can’t figure out WHY a property is selling for an under-market price, you likely haven’t found a good deal.
Step 4. Buy the Property
Once you hit this point, you should be in problem-solving mode. You are creating the deal here – and the best deals are negotiated when you solve a problem for the seller.
Let’s say you find a great property and the seller has already moved out or can’t afford necessary repairs. Try offering a much-lower-than-market price for a fast close. If the seller will not reduce the price, try for vendor financing with favorable terms or try to negotiate furnishings, sporting equipment, or even vehicles into the deal.
Or let’s say you find a multi-unit property that the owner is selling because he’s feeling burnt-out as a landlord. Offer to become partners with him – with you taking over managing the property in exchange for 50 percent ownership.
Once you’ve negotiated a great deal, you secure your financing, get an inspection, hire a lawyer, and complete some final due diligence to ensure that property really does meet your objectives.
Step 5. Make Money
At this stage, it’s all about maximizing your revenue. Spend a bit of time finding and placing good tenants (or hiring a quality property manager), and then monitor the bookkeeping records regularly. It only takes a few hours a month – and while you’re doing it, you will spot ways to minimize expenses and make more money as you get ready to buy your next property.
Following this simple five-step process takes the fear out of making a real estate investment. And it ensures that you’re buying property that meets your long-term goals. When you do that, there’s no reason to worry about what the media is saying or what the herd is doing.
As Michael Masterson said in his book Automatic Wealth “Here’s a promise: If you haven’t ever invested in real estate but you start this year, you’ll be glad you did. If you keep investing – buying at least one new property a year (which will be easy once you get going) – you will be a real estate multimillionaire when you retire.”