Answers to the three Real Estate questions you are most afraid of.
by James Miller
1) Are you new at this?
The number one mistake you can make when starting in Real Estate investing is trying to come off like you know more than you do. Experienced professionals will see through it in a minute.
There are a few cases when this will come up most often; First, when dealing with Real Estate Agents, and second, when dealing with sellers.
Real Estate Agents and sellers can be quick to discount the legitimacy of your offer if the sense you are new, but pretending to be more knowledgeable than you are will only get you discredited in their mind even faster.
Much of this is part of the road you have to take to get experienced, and you shouldn’t hide the fact that you are new as the questions you ask are the building blocks to educating yourself.
So how can you be taken seriously when just starting? Let the people you are dealing with know that you are new, and that you don’t have all the answers and could use their help working through this first deal.
Tell them that you are gathering information for an investor you are partnering with.
Here’s a secret: They really don’t care if you are new.
Real Estate Agents and Sellers just want to make sure the offer you are presenting them is solid and that they will be able to close the deal. They don’t want to waste their time. Their biggest concern is really whether or not the money is there behind the sales contract.
I am sure the best combination in a sellers mind is a uneducated investor who has a whole bunch of cash. It’s not the “new” part that scares them, it is whether or not the offer is solid.
The best course of action for new investors? Let the people you are dealing with know you are new and ask them for help.
2) Prequalification letter.
Realtors will often times require a prequalification letter from a bank to accompany any offer. While some state it as policy on all offers, in my experience this requirement tends to go away after you have closed a few deals.
To a Real Estate Agent a prequalification letter is really more paperwork that they don’t want to have to keep track of, but many do use it to try filter out those who can preform and those who can’t.
As Real Estate Investors, we know that once we get a property under contract, there are lots of ways that we can make money off of it, and it doesn’t necessarily require that we have a whole lot of money to begin with.
We can assign a contract, do a double closing, or bring on partners to invest with us. All of these things don’t require money, but they do require us to have a signed Real Estate Contract before anyone will talk seriouly about a deal. Without the contract you have nothing. A verbal agreement can break down at any time, and a hot lead can be snatched up by another investor quickly. Real Estate Agents don’t always buy into an investors line of thinking, and would much rather know that the money is there, than trust that it will be later on.
Here is how to handle the issue of the prequalification letter.
If you have money, even if it is sitting in a 401k, print off a statement and give it to them. Sometimes this will suffice as many agents will be satisfied with anything that loosely fits the definition of a prequalification, as long as they have some piece of paper to go in that file folder.
I have a generic letter that I had my bank write up early on that seems to pass as a prequalification letter, but has such generic wording as not to commit the bank to anything. In it’s strictest sense a prequalification letter really doesn’t do that either.
The letter we have goes like this:
[lender] will be reviewing your loan request. This letter is not a loan commitment, but only states that we are willing to review your request for the purpose of financing, but are not committed to any potential purchases that [your company or you personally ] present to us.
I used this letter over and over again when we were first staring out and it was only rejected one time as not good enough.
My last thought on this is that when you are staring out, there will be a lot of resistance from those who don’t know what can be done, and a lot of stumbling around until you find the right people to help you.
Don’t let this deter you.
If you find yourself struggling while dealing with someone and the results you are getting are not commensurate with you efforts, get rid of them. Lif e is too short to bang our heads against the wall dealing with people who aren’t willing to put in the effort to work with us….. Especially if they aren’t fun to hang around in the first place.
3) How much are you looking to invest?
This can also be phrased “What price range are you looking to invest in?”. Both questions are the same, a nice way of asking how much money you have. My standard answer has always been the same:
I am willing to look at anything that makes sense.
You will have to define “what makes sense”.
When looking for rental property, I have often described the 1% rule as a general guideline for what I’m willing to look at. This is where I need to see a gross income of 1% of the purchase price of the property each month in order to consider it for further evaluation.
If I am looking for a fix and flip project. I will tell Real Estate Agents to find properties for me that when I have them fixed up I will have a total of 70% or less of the after repaired value of the property. This requires them to evaluate what it will take to fix up a property, but the nice part is that most of them will overestimate repair costs.