Investor or Gambler?

I got a phone call from an investor a few days ago, who wanted to know if I was interested in partnering on a deal with her…

I got a phone call from an investor a few days ago, who wanted to know if I was interested in partnering on a deal with her. I asked her to explain the deal to me. She said it was a duplex in Plymouth and that she was paying $257,000 for it. The sellers had it rented to handicapped people that were going to be leaving when it was sold. The owners were taking their tenants to a new building. I asked her what the rents were, and she said that the owners would not disclose because of the type of tenants. I asked her what the property was worth and she said that the comparable sales showed it was worth about $257,000. I asked her if it was going to have a positive cash flow according to projected rents. The numbers that she shared with

me told that with NO vacancies ever, NO property management costs, NO maintenance issues, an interest rate that she HOPED she would get and 20% down, it would have a small positive cash flow.  Then she spoke of what a good location it was and other positive factors, attempting to convince me (and herself) that in a declining real estate market, this was a good investment.  The first thing I want you to know is that this investor could have been ME. Everyone runs into a deal now & then that for any variety of reasons they feel the need to make it work.

 

I nicely (I hope) reminded her that there are 3 reasons to buy real estate;

 

1. Positive cash flowYou MUST take into account;

  • a minimum of 10% vacancy rate (higher if the area calls for it),
  • at least 10% of collected rents for maintenance,
  • 10% for property management (even if you manage it yourself)
  • interest rate 1% higher than you expect to get for your mortgage
  • lower rent than you expect – unless the tenants already exists
  • taxes
  • insurance

 

2. Significant discount – Minimum 20% if you are not going to have a

positive cash flow

 

3. Higher and better use – This one is only for experienced investors

 

If you are not getting at least one of the above 3  – – – – –

Then ask yourself one more question; 

‘Do I want to be an investor or a gambler?’

 

If the answer is gambler, then go ahead, it may possibly pay off for you,

but stop attending Investment meetings and go to G.A.
(Gamblers Anonymous)

 

If the answer is investor, then

W A L K  

A W A Y

 

Fortunately, she did! (walk away that is)

Author: The Jeff Howard Group powered by Keller Williams Realty Las Vegas

I moved to Las Vegas in 1993 and I have been investing in Real Estate since 2003. I believe in creating win-win scenarios whenever I buy or sell any real estate. I have owned over 50 properties in Idaho, Ohio, South Carolina, Rhode Island, Massachusetts and Nevada. Whether you're ready to invest in the Las Vegas valley, or if you want to buy or sell a home here, as your Realtor, I will help you make great decisions and add to your bottom line. Call me today to talk about your next real estate move. 702 SELL NOW (702-735-5669). To see what my past clients have said about my, be sure to visit http://www.JeffHoward.reviews

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