This is probably the most common question I've gotten from people: "How do you find properties to buy?"
My answer is: it depends on your risk tolerance. The way to make the most money is to get a hold of foreclosures before they hit the open market. You've probably seen this on TV, where smarmy house "flippers" go to the courthouse & bid on properties site unseen.
But me? I have a low tolerance for risk. Almost every property I've ever bought was on the local MLS. Yes, that means I pay more than I would if I went bought houses at the courthouse or sent mailers to potentially distressed homeowners. But I'm able to view the property and make sure there are no scary defects (i.e. foundation problems, etc).
For me, it's pretty basic. In order for a property to work, I have to be able to finance it over no more than 20 years (25 in certain situations I'll address later), and make the payment (plus property taxes / insurance / etc) with market rent.
Example:
I bought a little 2BR home a couple years ago for $58k. I borrowed $55k over 15 years at 4%. The payment is $406.82. Add in taxes + insurance and my total payment is about $550. This property rents for $750/mo, which easily covers this.
If you are able to amortize a loan over 15 years & still make ends meet, it's a winner as a rental. My objective is long term - and after 10 years, this property will be paid down (by someone else) to the mid-$20s. Almost regardless what the market does, when I go to sell this little house, I'll have a nice payday.
Uh, yeah. You are essentially trying to buy real estate, wholesale. Most list prices you see are retail. And even when you find one that's close, math-wise, competition can be stiff and you might write about 20 offers for every property you actually get.
Sometimes I'll run into a property that doesn't quite work, math-wise, but I think it's a good buy (maybe a fixer-upper in an appreciating area). In those situations, I will allow myself to go to 25-year amortization, which can make the math work. Remember my goal isn't immediate income, but long-term asset-building.
What about financing? →
My name is Dan & I've been an active real estate investor since 2004. I also have a broker license in 2 states: Florida & North Carolina. I've seen the best of times (2005-2007) and the worst of times (2008-2010).
