Buy Investment Property Without Seeing It (PDF download)

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Buy Investment Property Without Seeing It

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Why would you buy investment property before you saw it? Because it isn't always what you see that
matters most.

buy investment property, investment property, real estate

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Why would you buy investment property without seeing it? It's a numbers game. Whether or not you see the
property before you make an offer isn't nearly as important as making sure the numbers make sense.

A man in California used to just send out offers on a hundred MLS listings at a time, offering 25% less than
the asking price on each one. Occasionally a few sellers would accept his offers. He never had to look at the
homes beforehand. Including an "inspection and approval" clause in the offer meant he could always back
out of the deal later when he saw the house. Meanwhile, he efficiently found the truly motivated sellers.

This true story demonstrates that with a good clause or two in the contract, you don't have to worry about
making an offer before you see a property. It's true when you buy investment property or your next home.
When it isn't everything the seller says it is, you can reject the deal with little or no loss. So why wouldn't
you want to look at the property?

<b>Buy Investment Property By Numbers</b>

The main reason you might skip looking at a property before making an offer is time. This is certainly true if
the property is far away. If you don't get a price that makes sense, why spend your time traveling to look at
real estate investments? A price and terms that make sense - this is what is important. Of course you'll
probably want to look at the actual property eventually, but looking at the numbers is how you invest.

Investors value income property according to current cash flow (or should if they want safe and viable
investments), so start by verifying income. Get the actual income figures for the past 12 months. Always
consider the potential income if rents are raised, vending machines are added, etc., but base your offer on the
current income.
Verify all expenses with investment properties. If any expenses listed by the seller seem unusually low, they
most likely are. Just substitute your own best guess in place of any suspicious numbers.

After you determine the net operating income, apply the appropriate capitalization rate to arrive at the value.
If you're not sure how to do this, get help. However, you really should understand the principle of how to
figure a cap rate. This is a numbers game you're playing.
Calculate loan payments (talk to your banker), and see how much cash flow you'll have. Then you can figure
your cash-on-cash return based on how much of your own money you put into the deal. Just divide the cash
flow by your investment.

When the numbers work, you can safely make an offer. Inspections will tell you if there are problems that
will affect the cash flow. You can always renegotiate if there are such problems (assuming you made your
approval of all inspections a contingency of the offer). Of course, you can even go take a look now that you
are truly ready to buy that investment property.

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