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Keys for Investment Property Buyers

Perhaps the main thing a real estate investor is curious about what the owner paid for the property, but the key thing is what someone will pay for the property right now.  The real estate market hinges a lot on the overall economy, so it depends if the economy and job market is growing or slowing.

As an income property buy you want to gauge how much you are going to make through renting the property in the economy right now. The world economy also has an impact - as you see a lot of Chinese investors buying real estate in New York, Los Angeles, San Francisco, and other major U.S. cities.

And then investment property buyers want to know why the owner is selling a property, how motivated are they?  Will they budge in terms of price since they have to move? Maybe they have a new job lined up out of town or they may have even lost their job....

If the ad for the home says 'asking', 'submit all offers', 'motivated seller'—there’s a big opportunity to buy an investment property at a reduced price but there will also be a lot of other interested buyers if the property is of a high quality.  On the other hand, it could be a property that's just in need of too much work.

As for why the owner is selling, perhaps their family is growing and they have a new baby on the way and need more space or that new job in another city.  Is there a neighbor that they can’t stand and really pushed them to move - something you as the buyer might want to know since you don't want to be in the same situation they are. 

Is the traffic in the area horrendous? Ask questions to learn ways you can negotiate.  Some factors are bigger negotiating tools since they're things you can't change - traffic, a neighbor, new factory being built, and so on.

Overall, the more information you have the better you’re able to negotiate. No one’s looking to dupe or defraud an owner for what is rightly deserved, and sometimes a mortgage company won’t approve of a sale that’s below the value of the loan. Moreover, as the buyer, you’re looking to be a solution to a problem for the owner and evaluate the property based on standards of the market - comparing what other properties if equal size sold for in the past few months.

However, know what the property owner paid and how long they’ve owned the property, look at comparables, all this can help you determine if your price is right.  Owners who've owned the property for a long period of time are more willing to give up a property for a low price if they’re making a profit already —they’ve seen a lot of appreciation over the years. 

Some owners just won't budge on a price, and it's better to know that right away and now waste your time.

Questions: How was the price arrived at? Do you have comparables for the last six months for similar properties in the area?

  • Your timing (what’s the state of the real estate market and the overall economy).
  • Respect the property owner – I don’t like people who are trying to take advantage of a situation, noone one does. There’s a difference between offering a low price for a property since the owner has to move because of a new job and an owner who just can’t pay the mortgage and is going to lose their job. Sure, it’s a business transaction but something to keep in mind.
  • There are other properties - there are always other properties to buy. Yes, you might fall in love with a property and be willing to over pay, but don't. Instead, walk away and find another investment that makes sense.

There's also nothing wrong with having an offer rejected because it’s too low is fine. You have to offer a price that you’re comfortable with. When proposing a price, don’t act like you’re a car salesman offering a take or leave it price. You want to leave room for a further reduction in price.  Don’t say this is the lowest I can go unless it actually is. Leave a bit of wiggle room initially when making an offer on an investment property.

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