Making Money in Real Estate

The first time I invested in real estate, I was able to make money in part because I bought a piece of land cheap. In fact, I offered 22% less than the asking price. Understandably, the real estate agent didn't want to bring my offer to the seller. But fortunately I was too ignorant to know that such a low offer would normally be insulting, and a waste of time.

I say fortunately, because my offer was accepted. This was my introduction to the art of the low offer. It was of course, a misleading lesson for me, because the truth is that such low offers are almost never accepted. But this doesn't mean that they're not worth making.

First of all, it is important to recognize that low offers ARE sometimes accepted. A friend of mine bought a home on a lake for $40,000 less than it was worth, simply because he made a low offer. No one else was making any offers at the time, and the seller was ready to move.

Of course, as I said, this doesn't work often, so you have to balance the time and trouble of making many rejected offers against the occasional profit from one that is accepted. In the case of my friend, he had probably made ten offers on various homes before getting this one. $40,000 for ten offers seems like decent pay, doesn't it? For that matter, if you aren't too busy, wouldn't $40,000 justify one hundred offers? (That's $400 per offer, by the way, if you want to average it out.)

Make Money By Lowering Expectations

The real point of a low offer on real estate isn't to get the property at that price. That's just a nice bonus if it happens. The real point is just to lower expectations.

Of course you'll have a lot of offers that are just plain rejected. Sellers will often feel annoyed or insulted, and won't even consider subsequent offers. That's okay - it is just part of this game. Investing in real estate in this way is about the numbers. You make your money by making more offers.

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Making money in real estate is an endless topic that includes all the various types of real estate investments. There is land, apartment buildings, homes, commercial buildings and more. Whatever the type however, you'll make your profits in some of the basic ways listed below. Use this list to get yourself thinking of the possibilities.

1. Appreciation. Making money in real estate can be as simple as holding on and waiting. To really get the most appreciation in value, however, you should buy in an area where demand is growing faster than the supply.

2. Depreciation. Remember that after all the tax law changes, you still get to declare a loss for depreciation that doesn't really exist. That can save you a lot at tax time, meaning more after-tax profit. To maximize this, buy property that has its value primarily in the buildings, because you can't depreciate the value of land.

3. Loan pay-down. You gain equity with every payment you make. Get the lowest interest rate you can and more of each payment will go towards the principal.

4. Cash flow. When you buy income property the right way, you not only have your tenants paying all the costs and paying down the mortgage loan, but you also have positive cash flow.

5. Buy low. When you buy below market you get instant equity that will be converted into a profit when you sell. Offer a reason for the seller to sell low: fast closing, cash, assume some debts or liabilities, etc. Or just make a low offer. The seller may have his own reasons to sell it cheap.

6. Sell high. Clean it up nice, make it easy to buy, and find the right buyer to get top dollar. The next four on the list cover ways to create value, so you'll get more when you sell.

7. Offer financing. You can often get substantially more for a property if you offer financing. This is especially true if you let someone buy it with little money down. You can also get good interest on the loan.

8. Change use. If there is a higher use for the property, you can convert it to make it worth more to the next owner. Sometimes this means making condos into apartments, or apartments into condos. Maybe converting a home into office space will get the biggest return.

9. Improve and repair. Repairing anything that needs it is obvious, but you need to look creatively and carefully to find improvements to make. Concentrate only on those that will raise the value several times more than what they cost you.

10. Sell in parts. In real estate, the parts are often worth more than the whole. For example, splitting off an extra lot to sell for $30,000 will rarely decrease the value of a home by that much, so you'll make more money in the end.

Making money in real estate can be a wonderfully creative process. Just look at the sources of profits listed here, and think of how you can maximize a few of them on your next real estate investment.

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