BUYING CHEAP
Substantial discounts must fall in the 20¬50 percent range to make serious money. Don’t tell me how hard it is. I already know. The good news is, it can be done and with a little knowledge, you can do it.
When I talk about these sizable discounts, I’m talking about the difference between what you negotiate to pay for a property and what it will be worth after you become the new owner.
For example, if I determine a shabby looking house is worth $100,000 after I clean it up, and I estimate the clean-up effort will cost $10,000, my goal would be to acquire the property for no more than $70,000 or a 30 percent discount. If you can do this with a HUD, house or foreclosure – fine!
Looking for bigger and more substantial discounts is what led me to my favorite type of investment real estate: small multiple unit properties. I quickly discovered that 30 per¬cent discounts like the single house example above, were like child’s play compared to run-down multiple-unit properties.
Multiple unit values are primarily deter¬mined by the income they generate. The appraisal is the only measurement of value for single family homes.
When a small apartment building or group of duplexes is allowed to become run down, the income or rents the property generates go down with the property. Buying properties with low rents is where discounts can really become substantial-40-50 percent dis¬counts are not unheard of. ‘Investors who learn to participate at this level can rip, snort and rumble when it comes to paying the right price the day they buy.
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