A lot of people have asked me the question: “How do I know when I’ve found a good deal?”

Usually they aren’t 100% sure they trust their Real Estate agent, or they aren’t using one.  In either situation, probably the best advice for most people would be to either get an agent, or a new agent.  That’s not who I am talking to today.  Today I’m speaking to the people who are genuinely interested in being more self reliant, and expanding their context.

The first rule: Information is Power.

I don’t think I have to back that up with any empirical evidence, no one will argue that point.  The real question is, what information?  And how do I gather it?  These are the questions that need to be answered.  In order to make good deals happen, you need to be confident in your position.  You need to know, better than your opposition what a particular property is worth to the market, the seller, and even the agents involved.

What information is needed?

You need to know what competing properties exist out there.  Think of them as companies bidding on a contract with you.  You want to get the best bang for your buck.  You need to know what factors  differentiate the properties, and why their asking prices may vary from each other.  If you’re looking for investment properties, then you also have to do a lot of calculations, and projections based on the 3 primary income streams an investment property can generate: Cash Flow (my favorite), Capital Appreciation, and Principal Reduction.  I will leave the details of those for another post.

How do I gather this information?

The key factor here is exposure.  Most people will only look at a few properties before they see the one they like, and bid on it.  I make it a point to stay away from those ‘love at first sight’ properties until 2 things have happened.  The first is the rose coloured glasses need to come off, or fade at least.  I’m talking, of course, about that feeling we all get when we see something we want.  It’s that feeling that drives most of consumerism, and, costs people most of the money they make in their lifetime.  The second, I need to know the market.  What that really means to me it viewing as many similar properties as I can, not necessarily because I want to buy them, but because I want to know for myself how they differentiate.  I’m gathering the information mentioned above.  You can do this in two ways.  One would be to be meticulous, track every little detail, and compare them methodically.  The other way, my favorite, is to simply expose yourself to all these properties, and gain confidence in knowing what they are really worth (to you, the agent, the vendor).

Now I have to point out a subtlety that may trip some people up.  This last technique is simply to assist you in making offers that will not lose you money.  It will protect you from buying an overpriced property (especially if you opt not to use an agent – though I really cannot recommend that practice).  It does not mean that you do not need to do a financial analysis on the property, especially if it is an investment property.  Those 3 income streams are how you will make money, and even if you are bidding confidently, knowing what the property is worth to the agent and vendor – unless you’ve done a financial analysis – you don’t know what it is really worth to you.

To sum up: Make sure you look at many more properties than you are really considering.  As long as they are in the same market, you should know about them.

Stay tuned, I will be presenting more information in the near future, including ROI calculations, gaining investors, and analyzing the 3 pillars of Real Income.

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