I mentioned the results of not doing a good job by really taking a look at and analyzing your financial statement. The worst thing that can happen is to get stuck with a dog property when you were led to believe that it was going to be a huge cash flow generator.
1. Learn to look for inconsistencies in expenses and income. Make sure you look for a REALISTIC upside as well. Most of you have heard my stories about investors buying properties for tens of thousands of dollars less than what that property was really worth. As a matter of fact I just worked with an investor that purchased a $510,000 property and the appraisal came in at $550,000. Why? The investor knew what they were looking for in the numbers and knew that there was realistic upside that the seller was leaving on the table – a thousand of dollars of upside. OK – two main questions:
a) Why would a seller leave all this money on the closing table? Most of the time they have no idea they are doing it. They get some bad advice or feel that they really know how much the property is worth – when sometimes it is worth more than they think.
Also, Bad Management and lazy ownership. In other words owners or managers knowing that they need to raise rents, cut expenses, do improvements, etc. But just don’t. Ultimately leaving money on the table.
b) Where do you find these properties? OK – Its not like an infomercial where you start looking Monday and have a property under contract on Tuesday morning with $50,000 cash coming to you at closing. Realistically the majority of properties out there do not have the ability to produce money for the buyer at the closing table, i.e., the property will appraise for the purchase price.
So, it gets back to looking closely at all of the financials and condition of the property you are looking at to see if you have found one – also, if you are working with someone that knows what they are doing they can call you and tell you that you have an opportunity to make some good money at closing. So, it takes some patience and an alliance with someone who knows what you are looking for and what you are doing.