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The more streamlined you can make your property investment searching the better. You’ll not only save time, you’ll often save money as well when you put a process in place that can help you find profitable properties quickly.
Of course you won’t shortcut your due diligence – it must be done if you hope to have any kind of success – but what you’re going to do, essentially, is narrow down your field of choices.
Trust me. It makes searching for your next investment property so much easier.
1. What Do You Need?
To begin with you’ve got to know what exactly you’re looking for. Do you need a positive cash flow property or is capital growth your goal?
While it may be possible to get both, it’s best to choose the strategy that is right for your portfolio.
2. Make A List
You’ll be creating a short list of possible locations, based upon your strategy and then weeding them down further until you find the right property in the right location to meet your needs.
Begin by studying the market drivers. What are the major forces moving the market? For example, is it population growth driven by strong economics in the region?
Look for the following key factors:
- Diverse (growing) employment base. Avoid “one trick pony” towns where a single industry (e.g. mining) towers over other business in the area.
- Major retail chains moving into the area.
- Infrastructure spending, both public and private, which is designed to meet the needs of the current and future population.
- Rising incomes – this keys into the types of employment available. While retail is an important growth indicator, it’s not an industry known for paying high wages.
- Limited supply coupled with an increasing demand.
Now that you’ve found markets with good drivers create your short list of possible investment locations and then begin to dig deeper.
3. Dig Deeper
As you sift through the data do the following:
- Who are the major employers? Do they pay well? Are they from a number of different industries which are solid industries such as education or medical?
- What are the rental returns and the market values for these suburbs for both houses and units?
- Pick no more than two or three suburbs and study them until you know them as well as any agent in the area would.
- The “good” streets. What makes them “good”?
- The “bad” streets. What makes them “bad”?
- What has happened to these locations over time?
- Vacancy rate
- What types of properties do the residents prefer?
- What rents can they afford?
Begin building your team:
Build a team of professionals in the area who can be your “boots on the ground”. Look for quality valuers, real estate agents, mentors and others who can help you invest in the area.
4. Find Your Property
Now that you’ve narrowed down a few suburbs look for opportunities by searching for the “Six D’s”:
- Dummies (uneducated vendors)
- D’Bank (bank owned properties)
- Desperate vendors
Where and what to look for:
- Private sales (no agent)
- Divorce and bankruptcy courts
- Run an ad in the paper
- Newspapers, including suburban ones
- Properties owned by older individuals which look uncared for or which are simply out-dated looking
- Real estate agents who are willing to establish a business relationship
Look for the following keywords:
- Urgent Sale
- Moving Overseas
- Vendor highly motivated
- Mortgagee Sale
- Trustee sale (inheritance, etc)
- Private sale
5. Put together an offer
The best way to make money in any deal is to make it going in. Even though the vendor may be in a tight spot, he is very willing to negotiate – otherwise he wouldn’t be selling – however he will do his best to get the most out of the deal as he possibly can.
This is where negotiation comes into play.
A good negotiation strategy creates a “win-win” scenario for all parties, which also facilitates a quick sale.
- Encourage the vendor and his agent to deal by having a cheque book in hand. Show them you’re ready and willing to complete the sale and they’ll be more likely to negotiate a deal.
- If it fits with your situation, hint that a quick settlement could be in the picture.
- Know before you even begin negotiation what you can pay and don’t get talked out of it…your portfolio is counting on you! Show that you’re willing to walk if necessary – and do it if you must.
- Keep a “poker face” when viewing the property – give the agent and/or vendor no indication one way or another what your thoughts on the property may be.
- Make sure they know that theirs isn’t the only property you’re looking at.
- As you already know the market, use negotiation tools such as the median price, comparable properties, etc.