“Buy low, sell high” is one of those maxims that conceal a whole host of problems for an investor. While the actual words seem simple enough to understand and implement, the practicality of the advice is far from evident especially if one is interested in real estate as an investment. In short, real estate investing can be a difficult business for the uninitiated.
On the other hand, for those who can “think like a real estate investor,” the possibilities and the profits are almost endless. So, instead of applying a simple, throwaway phrase like the one above, take some time to really understand the real estate investment process. Here are a few suggestions to help get you started:
Understand the Deal and Your Role
Do not take any shortcuts on understanding the deal and your responsibilities within it. A thorough familiarity of the figures will allow you to ask relevant questions and ensure that your concerns are met. Ask for any current photos, plans or sketches of the property that will allow you to understand the project to your satisfaction. The borrower should not be blindsided by these questions. If so, find another deal.
Realize that Both Parties Have Needs
It is all well and good to hold out for the best deal possible but taking a non-compromising attitude on every detail will quickly derail any negotiation. You must learn to think like the borrower and understand that they need the loan to meet certain requirements or it is of no use to them. Acting as if you are the only one whose needs must be met simply wastes everyone’s time and energy.
Obtain the Right Security
One of the primary benefits of a real estate deal is that the loan is secured by real property. Once you understand this fact, you can negotiate away much of the fear by adjusting the loan-to-value (LTV) ratio and thus bringing the deal in to your “comfort zone.”
A Great Starting Point
While understanding these points is the first step in thinking like a real estate investor, having a knowledgeable advisor does not hurt. Private money lenders are experts at bringing qualified investors and dependable borrowers together and can explain everything from the basics to complex details to everyone. Intimately involved with the industry, they really do understand how to think like a real estate investor.