Many people have been approaching me asking about the deals that are out there in the real estate market.  I though I would put together a quick summary of my perspective on the five rules you need to follow if your investing in today’s housing market:

1. Bid Low…You can Always Go Up — Whatever the lowest price you think you can offer… bid less….you might get it. [Example: A home on the golf course in an upscale country club in Charlotte, North Carolina was foreclosed on by the bank. The bank listed it at $649,000, a 20% discount from the initial selling price. I walked through it and the realtor told me "its a steal" at that price. I told the realtor I would pay $300,000. They said I was crazy. That was 6 months ago. The house has had 6 or more contracts fall through. The current price $499,000 and dropping fast.]
2. Don’t fall In Love – I don’t care how much you love a home, don’t ever fall in love. This is business and price is most important.
3. Flipping Is Foolish – In this market, you would be foolish to think that you could buy, fix and flip. The market hasn’t even bottomed and in some markets like Washington DC, its still got ways to go. Plan your strategy with a 2-3 year horizon. Buy, Fix and Rent is what will cash flow you until the market comes back. And there are plenty of people out there who would rent a newly refurbished home, rather than take the chance on buying one. In fact, in some neighborhoods, if you buy the house right and watch your fix-up costs, you may be able to rent for less than it costs to buy. [Example: The same home I mentioned above, fully repaired can rent for $3,400 per month. With the purchase price of $300,000 and $100,000 in repairs, your net cost is $400,000. Your "non leveraged" cash flow is 10%. Comparable houses in the neighborhood (in a normal market) cost $650,000. If you had to buy one, the PMI would cost approximately $4,160. This includes 20% down payment or $130,000].
4. Be Patient – As the old song say’s “fools rush in”. Again in my example above, don’t be rushed into making a bad decision. The realtor will always tell you they have somebody else interested. Don’t fall for that trick in these markets. Its a long way from the lip to the pen.
5. Show Me The Money – If you got it, pay cash and refinance later after the house is fixed up and rented. Nothing is stronger than a “money in the bank” buyer who can close quickly. A contingency contact based on financing will always be second to the buyer who can “show the money” and in most cases this will help you negotiate a better deal. [Example: in the case above, a $400,000 cash investment, can be financed out for at least 65% of cost or appraised value. This means that you can cash-out for at least $260,000, maybe more if its appraised to market. Your rental income should more than offset the financing and provide you a healthy return on your remaining cash investment]..

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