This Issue: Success Comes from Making the Numbers Work

"Prices of existing homes fell for the first time in 11 years and the backlog of available homes for sale was at its highest since current measures began, underlining the significant slowdown in the housing market."

- "US Housing Slowdown Continues," by Daniel Pimlott and Michael Mackenzie, Financial Times of London, September 25, 2006.

Over the last month, articles like the one have been appearing almost daily in magazines and newspapers. They tell us that we're in a slump, the bubble has burst and the real estate market is flat as a pancake.

But if you look at that quote above, doesn't it say that prices have fallen and that there is a large inventory of available homes in the U.S.? And doesn't that mean that it is a good time to buy properties at advantageous prices? It does.

Of course, you have to be careful, because this is a difficult time to get top dollar for properties you want to sell. But even so, the combination of low prices and a large inventory of available properties represents a handsome opportunity for real estate investing. In other words, for people who have mastered the art of working the numbers.

People who know how to work the numbers have developed skills like these:

1. They buy properties at the right price. Our own blog post of September 22 can tell you more.
2. They accurately estimate what a property will be worth after they have improved it.They study comparable property sales in their regional markets so well that they know how to weather temporary price slumps.
3. They set a budget that supports points #1 and #2 above, and stick to it aggressively. They know that over time, overspending even a little on fix-up costs, realtor fees and other expenses will suck the profit from any property. That's why they ride herd on every nickel and dime they spend.
4. They build a buffer into any real estate deal. They realize that unexpected costs come up and they have a cushion that keeps those surprises from sinking them.
5. They have contingency plans. In today's market, for example, it could be a mistake to hang your plans on the idea that you will sell a property in one year. At that time, the market might still be soft and you might do well to wait before selling. One winning strategy? Acquire properties now, rent them out and improve them later so you can sell them when the market surges again.

This can be a time of immense opportunity if you possess the right skills. Our Real Estate Investor Training Program can show you how.

There's good news and bad news in the war against drugs.

The good news is that drug use among teenagers has dropped slightly for the third straight year. Less than 10 percent of kids ages 12 to 17 claim to have used illegal substances.

The bad news is that overall, for the rest of Americans in nearly every other age group, drug use has gone up.

Surprisingly, the demographic most affected is Baby Boomers. The use of marijuana and other drugs among people ages 50 to 59 rose a whopping 63 percent over the past three years.

Anti-drug officials say that a lot of these Baby Boomers were in their teens and in their twenties when drugs were so big in the 1970s. Apparently, they've carried their drug habits with them into middle age. Some are just now turning to marijuana instead of sleeping pills or anti-depressants.

I don't know whether to be glad that today's teenagers are getting smart or to be depressed that so many people from my generation are just so stupid..

Donald J. Trump, Chairman of Trump University, offers his insights in many Trump University courses, including The Real Estate Investor Training Program.

When you ask most people how much they are willing to pay for a property, they usually say something like, Well,the asking price is $275,000 . . . maybe I can bargain that down to $245,000.

That's how they decide how much they are willing to pay for a property. And that kind of thinking makes no sense. To make sure you make a profit from every deal, you have to back into the price you will offer by working the numbers.

First, Determine Your Estimated Sales Price

This is the price you will be able to sell the property for after you have improved it. Look at comparable sales in your area, determine whether the market is going up or down, and understand exactly how much your property will sell for.

Don't exaggerate this figure, based on optimism. Don't expect your property to sell for more than comparable homes, just because you think it will. It is that kind of unrealistic optimism that causes most people to lose money on real estate investments.

Second, Total Up Your Projected Expenses

These generally include:

• Closing costs - Total closing costs, both for the time when you are buying the property and the time when you are selling it too.
• Costs of renovations -Cosmetics, mechanicals, masonry, painting, everything.
• Taxes - And don't forget that the longer you hold the property, the more taxes you will pay.
• The cost of borrowing to buy the property - Your loan costs money, both at the inception and every month.
• Realtor commissions - Unless you can realistically expect to sell the property yourself, plan to pay realtor commissions when you sell it.
• Hidden costs - Depending on the age and condition of your property, you can expect that something unexpected will go wrong or need to be added to your list of renovations to perform. An older house can hit you with as much as 15% of its market value in unanticipated expenses.
• Insurance - Buy fire, liability as well as builder's risk insurance.
• Maintenance costs - You will have to hire companies to shovel the show, cut the grass, do post-construction cleanups and possibly protect your property from vandalism while it is vacant.

Third, Subtract Your Projected Expenses From Your Estimated Sales Price

For example, let's say that you realistically expect to sell a property for $375,000. However, your projected fix-up and other expenses total $125,000.

That means the maximum sum you should offer the seller is $250,000. Otherwise, the deal makes no sense. Actually, you should offer the seller less than that. After all, you are investing in real estate to make money. If you are not making money, what is the point of investing in real estate? So know how much you would like to make on the deal and work that into your estimates too.

Numbers never lie. Make them work for you, and never pay more than you should for any property. If you do, you have no one to blame but yourself. But if the numbers tell you that you stand to make a good profit, negotiate hard for the price that will allow that to happen. If the seller won't accept your offer, don't feel bad about walking away. There will be another deal. When it comes along, work the numbers to make sure it will earn you a handsome profit.

Tolearn more about making money in any market, register today for Trump University's Real Estate Investor Training Program.