Residential Real Estate Investing: The Smart Way, Part 2

In the first part of this series, we talked about some of the basic issues in residential real estate investing. In this part of the series, we are going to look at finding and tracking residential real estate for investment.

You have your source of funding lined up.  You have selected a real estate agent.  Now you have to find a property to purchase.

1.  The MLS (multiple listing service) is not the only source for finding properties.  In fact, since it is the most popular source, it can be a better idea to look outside the MLS to find properties others may not know about.  Where to find properties outside the MLS?  Auctions, FSBO's, estate sales and word of mouth are just a few ways.

2.  What are your short and (if applicable) long term goals for this investment?  Are you looking for a property to generate immediate income?  Something that will help support you in retirement?  Something that you may someday want to move into as a primary residence?

3.  Start to analyze trends and area statistics.  Even if you plan to hold onto the property for the long haul, you still want something that can be unloaded if necessary.  What is the average area income?  What is the profile of the average buyer?  Are you buying something that will be in demand by the average buyer?

Remember, even if you are going to hold long term, you are STILL buying this property for the person who will someday buy it from you!

An easy way to get started is to go to the website for your local Chamber of Commerce or Office of Economic Development.  What is the median selling price for the area and the median square footage?  Then, use a site with heat maps, like Trulia , to determine the "popularity factor" in your area.  Here's what your goal should be:  something in the more popular area, with at or above the average square footage for below the average selling price.  I've included a heat map below to help you understand - the red area indicates the most popular area of Chesapeake, Virginia, while the green area indicates the least popular.

4.  Tracking.  Do not allow yourself to get emotionally involved in a bidding war.  This is where many investors make their biggest mistakes.  They get caught up in "winning" the property and lose sight of their real estate investment goal.  Do your analysis upfront and decide either:  (a) in order to make a profit, you need to acquire the property for $xxx or less or (b) in order to generate the monthly cash flow you need, you cannot pay more than $xxx for the property.  Know those figures and stick to them because every dollar more you pay is eating into your bottom line.

In my next post, I will be interviewing a seasoned, successful residential real estate investor and getting his insight into what he sees investors doing correctly and incorrectly.

Related Post
Smart Residential Real Estate Investing, Part 1

Related Training:
Real Estate Investing
Real Estate Coaching
Foreclosure Deal Source