The art of negotiating is to talk not in numbers but about what you’re looking for and how you and the agent can help each other out. Negotiating is an art because it requires a nimbleness of mind; a calmness of demeanor yet sternness of reasoning; and an ability to realize a deal for what it’s worth and either walk away or buy the property.

To help do this, you should expand your des moines real estate knowledge foundation to cover all the bases when talking to agents or property owners. Your success often depends on how you act and speak – your professionalism and presentation.  The key to closing the deal is how do you make both parties happy – and getting there doesn’t necessarliy mean agreeing on the exact price each party is wishing for – many times it’s a compromise of needs and wants.

The most critical piece of information you need to figure out before meeting with an agent is what you’re willing to pay for a piece of property. If you want to pay market value or more for a property because you fear you’ll lose it, then it’s crucial that you inform your agent. Most agents will attempt to negotiate a below market price because they want you to be happy and remain a client. Let’s say you’ve defined your desired aspects of a property so acutely that there’s only one property that will satisfy you, and you’ll consider making an especially competitive offer just for that property. Make this clear to your agent, and he or she will use their negotiating powers to get that property for you.

Use your first visit as a session to gather information. Don’t be pressured into making any decisions yet. (The phrase, “Let me talk this over with my team or spouse,” will come in handy.) Go home so you can think clearly and analyze what you have recently found out.  However, there will be times where there are a number of people competing to buy a property and you will have to make a quick decision – do your research and studying before this decision and know the price you can offer and still make money.

When going through the negotiation process, consider the following issues, ideas, and tips before finalizing a decision.

• There are always other options and other properties to consider. Don’t settle for mediocrity when you know there is greatness to be had.
• When negotiating, do so based on your personal feelings about the property itself. This isn’t to say that research and factual information aren’t useful. Use your gut feeling to supplement what you already know.
• Research is vital. Gather all sorts of information about the area, market, seller, up sides, down sides, you name it. Know the property and all aspects of the neighborhood. You can learn this from the seller, but you might be able to discover something that will raise the value of the property, so do your own research too. The more you know, the more you grow (and so do your profits).
• Be likeable. Engage people on a level that doesn’t disrespect or condescend. If you make sure to be as reasonable and fair as possible, the chances are good that the other party will be cooperative and willing to take your needs into consideration as well. This also includes discussing the terms that the other party is looking for and being thoughtful of their needs. Remember the adage, “What goes around comes around.” Also, it pays to find common ground, such as similar interests, religion, heritage, or anything else that will help solidify a friendly relation.
• Work together. Understand with greater depth the loyalties and duties of agents [link to Working with Agents] and assist them whenever possible so that they can better serve you.
• No all or nothing type statements are allowed. Remember, you’re negotiating, not gambling.
• Compare numbers with different types of experts such as appraisers, partners, real estate agents, and experienced friends who own property. Some appraisers will give you a value that extends back only six months, but others will give you a more comprehensive estimate that will protect you in the long run.
• Don’t give away information you hold secretly, such as future ideas, value of property, plans, or anything else of that nature. You could be doing yourself a great disservice if you do.
• Know what you want and what you can afford. Again, this relates to establishing your goals and plans, in addition to understanding your financial situation. The key is to be realistic and patient.
• Know the value of property and the highest you can go and still make a profit. Ask the agent to run a Comparable Market Analysis on similar properties in the neighborhood that have sold in the last year. Remember to take into the consideration the current market competition of other properties in the area.
• Speak of facts and not of potentials or hypothetical situations. Remember, you have to be convincing and firm with your plan, not loose and ambivalent.

One of the most effective ways to reach a consensus between two parties is to rely on consistent standards. For example, it is common procedure for the seller to fund the title policy, while the buyer pays for survey costs. Using accepted standards such as this will help two parties reach an agreement, preventing the two from arguing over every detail of the transaction. Also, this will minimize points of contention and allow everyone to focus on areas of the deal that demand the most attention.

With proper negotiating power, you will be able to make a decision on the spot to grab a property, if such a situation ever demands that type of prompt action. But if not, then you’ll have the confidence and ability to negotiate until both parties are satisfied with the terms of the final transaction.

(Brought to you by Des Moines Investment Property)

by Thomas J. Lucier

The most common mistake that many beginning real estate investors make is that they pay too much for property. Fact is overpaying for property is often cited as the number one reason why so many newcomers fail to make it as profitable real estate investors. That’s because most beginning real estate investors are woefully undercapitalized, and they don’t have the deep pockets that are needed to subsidize their overpriced real estate investments.

For many neophyte investors, paying too much for their first investment property usually proves to be a very costly and fatal mistake, and marks the beginning of the end of their foray into real estate. That’s why it’s imperative that you learn how to accurately estimate the current market value of potential investment properties! As far as I’m concerned, it’s the single most important aspect of the entire real estate investment business!

A Fast $15,000 Profit for Knowing the Value of a Condemned House

I once bought a real estate option on a filthy, neglected, run-down, but structurally sound house in a neighborhood-in-transition in Winter Park, Florida, a suburb of Orlando, that had been condemned for building, safety, health and fire code violations. This place looked like something right out of downtown Baghdad, Iraq! It had what code enforcement inspectors commonly refer to as accumulations of every type of debris, garbage and junk known to mankind! The property’s owner lived in Westerville, Ohio, and wanted the steady stream of threatening letters from the Winter Park Code Enforcement Board to stop.

I had done my homework, and knew the property was worth at least $110,000 after it was cleaned up. I ended up paying $500 for a one-year option to purchase the house for $75,000. It cost me $2000 to have all of the accumulations removed from the property, and the house, driveway and walkways pressure washed. Three weeks later, I sold my real estate option agreement for a $15,000 profit! This never would have happened if I had been clueless about how to estimate property values. Since I had an accurate estimate as to how much the property was worth in its current condition, I was able to negotiate a below market purchase price that was based on the property’s filthy, neglected, run-down non-marketable condition, and not on how much it might have been worth after it had been cleaned up.

No Kelly Blue Book for Real Estate Investors to Look Up Property Values

Sadly, there’s no Kelly Blue Book equivalent for real estate investors to lookup used property prices in, so you’re going to have to learn for yourself how to estimate the current market value of potential investment properties. However, thanks to computers and the Internet, in most real estate markets it’s not that difficult to get a rough estimate of a property’s current market value. This is especially true for real estate investors located in counties where all property ownership, sale and tax assessment records are available online.

The Definition of Market Value

The Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice, defines market value as: “The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the sale price isn’t affected by undue stimulus.”

The Difference Between Assessed Value and Appraised Value

The difference between a property’s tax-assessed value and its appraised value is as follows:

1. Tax Assessed Value: Tax-assessed value is the value established by the local taxing authority for a parcel of land and the improvements placed upon the land for property tax purposes. For example, in Florida, owner-occupied single-family houses are generally assessed at around seventy percent of their fair market value by county property appraisers.

2. Appraised Value: Appraised value is the value estimate given to a property by a licensed property appraiser using accepted appraisal methods for the type of property being appraised. For example, the accepted appraisal method to accurately estimate the fair market value for an owner-occupied single-family house is the comparison sales method where a property’s value is based on the recent sale of comparable properties within the same area.

The Three Common Methods Used to Estimate Property Values

The three most common methods used by property appraisers to estimate property values are the:

1. Comparison Sales Method: The comparison sales method bases a property’s value on the recent sale prices of properties that are within the same area and comparable in size, quality, amenities and features.

2. Income Method: The income method is used to estimate the value of an income producing property based on the net income the property produces.

3. Replacement Cost Method: The replacement cost method is based on what it would cost to replace the improvements on property using similar construction materials and construction methods.

The Comparison Sales Method of Estimating a Property’s Value

The comparison sales method of estimating a property’s value is based on the recent sale prices of properties within the same area that are comparable in size, amenities and features. In order to be accurate, sale price adjustments must be made for comparable properties that have been sold at unrealistically low prices or on overly favorable financial terms not readily available to the buying public.

The Income Method of Estimating a Property’s Value

The income method is used to estimate the value of an income producing property based on the net income the property produces. Under the income method value is calculated using a:

1. Capitalization Rate. The capitalization rate, or cap rate, is calculated by dividing a property’s annual net operating income by its purchase price.

2. Gross Rent Multiplier. The gross rent multiplier, or GRM, is calculated by dividing the purchase price by the property’s monthly gross operating income.

Watch Out for Owners Using Fuzzy Math

A word to the wise: when you read a property’s income and expense statement, you should always go under the assumption that the owner is probably practicing fuzzy math by fudging on the numbers, and telling little white lies to back them up. Also, use a monthly income and expense analysis worksheet like the sample copy below, to cross-check everything that’s listed on a property’s income and expense statement in order to reconcile the statement with receipts and tax returns against what’s shown on:

1. Schedule E (Supplemental Income and Loss) of the owner’s latest federal income tax return.

2. The property’s latest annual tax assessment income and expense statement on file at the county property appraiser or assessor’s office.

3. All of the rental agreements for the past year.

4. Water, sewage, solid waste, gas and electric bills for the past year.

5. Repair and capital improvement bills for the past year.

The Replacement Cost Method of Estimating a Property’s Value

The replacement cost method of estimating a property’s value is based on the cost of replacing the improvements on the property minus the cost of the land to estimate a property’s value. Replacement costs are calculated on a per square foot basis by dividing the total number of square feet in the building by the per square foot construction cost. For example, a two thousand square foot convenience store that cost $375,000 to build would have a replacement cost of $187.50 per square foot, $375,000 divided by 2000.

How to Get Free Building Replacement Cost Estimates

You can usually get a free building replacement cost estimate by calling a local independent insurance broker who represents insurers that specialize in providing property and casualty insurance coverage for residential and commercial buildings. When you call a broker, tell them that you want a replacement cost quote. Property replacement costs are calculated by using a replacement cost formula that’s based on the property’s geographical location and its:

1. Street address.
2. Age.
3. Type of construction.
4. Number of stories.
5. Type of roof.
6. Current use.
7. Heating and cooling system.
8. Square footage.

Use the Eight-Step Approach to Estimate a Property’s Current Market Value

Use the following eight-step approach and the current value worksheet on the following page to get a rough estimate of a potential investment property’s current market value:

Step # 1: Log onto your county’s property appraiser or assessor’s Web site to obtain the tax assessed value of the property under consideration.

Step # 2: Search your county’s property tax rolls for recent sales of three to five properties that are comparable in size, amenities and features, and located within two miles of the property under consideration.

Step # 3: Carefully analyze any comparable properties that you find, and make sale price adjustments for differences in amenities, special features and the property’s physical condition.

Step # 4: Verify the income and expenses that are listed on the income and expense statement of the property under consideration.

Step # 5: Analyze the property’s income and expenses for the past twelve months to estimate its net operating income potential.

Step # 6: Calculate the property’s capitalization rate by dividing its potential operating income by the estimated value that you derived from analyzing recent sales of comparable properties in step number three.

Step #7: Estimate the property’s value by multiplying its net operating income by the capitalization rate you came up with for the property.

Step # 8: Calculate the cost of replacing the improvements on the property using the same building materials and method of construction.

Source:  REI Club

Thomas J. Lucier has been a real estate investor in Tampa, Florida since 1980. Mr. Lucier is the author of six books on real estate investing and managing Florida residential rental property. He is also a Florida licensed mortgage broker, and an active member of the National Association of Real Estate Editors, and the Real Estate Educators Association.

Are you ready to buy your first piece of investment property in Des Moines, such as an apartment complex, house, condo, or maybe a duplex?  Are you ready to get started with something that will have long term benefits to you financially?

If so, this decision can catapult you directly into an ownership position, which quite frankly might appear daunting at first, due to the high level of responsibility involved. Needless to say, this is a brave leap into unknown waters—the water could feel too cold or look too deep, or the diving board seems too high.

But fear not. Whenever we begin new projects or start new experiences, we often feel apprehensive because we don’t have enough information to help us along the way. We hope to ease this anxiety by providing you with all the key information you need, such as:

• how to choose property in Des Moines
• loan and tax advice in Des Moines
• how to improve your credit profile
• qualities to look for in Des Moines Investment property
• market facts in Des Moines
• hot spots and no-buy zones (dead zones),  of Des Moines

It’s important to think about the long term benefits of property ownership in Des Moines. When approached with the right frame of mind, you not only can succeed at owning property but you can also get much more out of it than what you put in.

Des Moines investment properties ownership offers freedom because you essentially become your own boss, and are limited only by your motivation and imagination. It gives you a sense of goodwill and kindness because so many people depend on you for a home. Ownership generates a tremendous amount of confidence from several avenues, such as potential for a sale or cash flow, or proficiency at a new task (e.g. electrical work or adding on to a property). With experience comes confidence and the ability to apply it to the future, such as how to deal with fussy tenants, how to repair things, and better yet, how to make more money.

Anybody can succeed with Des Moines investment property ownership, but most people never try because of their fear of failure. But if a 65-year-old immigrant from El Salvador who I like to call “Latin Dad” can do it, why can’t you?

The most important thing is to never lose sight of the main goal of property ownership: making money.  This is business after all.  Remember, this is not a charity—you have to make a living, too. In the long run, you want the property to pay for itself, as well as generate a good profit that you can enjoy for years to come.  Sure, there are times when it makes sense to break even and ride out a real estate lull, but long term you need to see a profit.

So whether you want to jump right into the deep end, or just get your toes wet, let’s make sure you have your ducks in a row.

To begin, here are a few fundamentals you should know prior to ownership and things you’ll need to get working on:

• Get your credit in shape
• Do a lot of research
• Talk to agents, brokers, individual sellers
• Have a plan (what type of property do you want to buy and where?  how long do you want to own the property?)

Questions You Should Ask:

• Is there another type of investment that’s better suited for me? Will a simple bond or CD generate more profit than this property? (If so, don’t buy this property. But if you insist on buying property, find another that’s priced below its value.)
• Will this property pay for itself? (Remember, you have to pay for a number of things, such as mortgage, operating costs, taxes, insurance, and don’t forget about your own living expenses. You’ll need to have some money left over, i.e. a cash flow.)
• Are there ways to increase the value of this property? (This is a wonderful benefit of being a property owner—you can directly impact the way your investment grows, which in turn earns you more money, unlike in the stock market, where you’re giving your money to another company.)

What type of property do you want to own?

• Des Moines weekend or vacation homes
• in-laws (can write off depreciation of the unit you’re renting)
• Des Moines single family homes
• Des Moines multi units
• Des Moines condos
• Des Moines fourplex
• Des Moines duplexes
• Des Moines apartment complex
• Des Moines  lofts

TIP: Statistics and numbers are the key underlying factors that determine if you should buy or sell. But be aware that statistics can have hidden elements that hide the whole story. It’s best to do your own research and investigating in conjunction with the information that a real estate agent gives you.

“Real estate fever” . . . it’s hit the Country like a plague. Zillions of “newbies” are hitting the bandwagon, trying to make a profit where they lost in the stock market. I meet them all the time, and many are making big mistakes!

Mistake #1: Stock Market Mentality

You’d think after losing $7 trillion in the stock market people would have learned! Nope, they are making the same mistake, which is assuming what happened yesterday will happen tommorrow. Nine of ten new Des Moines investors I meet say they are interested in Des Moines real estate because they saw someone else make money from the rapid appreciation of the market over the last few years. But, buying real estate solely for short-term appreciation is often a big gamble! If you buy real estate to hold for 15 years or more, the chances are you will come out on top. If you buy a property and flip it in within a year, you probably are fine, too. And, despite the risk, many people can intelligently time the “boom” of a local market (or subdivision within a market) and make a profit. But, if you buy a rental property for full market price with break even or negative cash flow, you’d better have a backup plan if the market doesn’t keep going up. Investing is a lot like surfing… if you don’t know how to ride the wave, you will drown!

So, should you refrain from investing if you think the market has peaked? Absolutely not! You can find bargain-priced properties in every real estate market, even the hottest. You can find low-interest rate financing that will increase your cash flow so if values drop, you still are covered. You can plan short-term (six to 12 months), because real estate markets rise and fall slowly. And, if you keep a cash reserve for your business, you won’t sweat when the market tanks, because you know that in the long run, real estate markets virtually always come back.

Mistake #2: Investing Blind ( Investment Property in Des Moines )

You’d think after losing $7 trillion in the stock market people would have learned! Nope, they are making the same mistake, which is blindly buying des moines real estate based on bogus advice or complete lack of education. Real estate is one of the few investments in which risk is directly proportional to knowledge. True, it has a higher learning curve than investing in the stock market, but there’s no proof that having knowledge of the stock market reduces risk (just ask your mutual fund manager).

I read a comment on a real estate discussion group on the Internet. In response to an inquiry as to whether a particular seminar or training program was worth the money, someone answered, “Why waste your money on that stuff? Just use your money as a down payment and learn as you go.” This is probably the worst advice you could ever give a beginner. Money for real estate deals is easy to find if you can find good deals. But, you won’t know what a good deal is without having first invested in your education!

The more knowledge of real estate investing techniques, financing, acquisition, negotiating and, of course, your local marketplace, the less risky your investments will be. A bargain real estate purchase will generally always be a safe investment; a bargain stock purchase isn’t – after all, who says the company you bought into will be in business next year?.

Mistake #3: No Cash Reserves

Ask anyone in real estate long term (or any other business, for that matter) and they will tell you the two most important words for survival are: “cash flow.” Heck, even K-Mart failed to learn that valuable lesson!

In order to stay in real estate long term, you need cash reserves. Buying real estate nothing down is easy; handling negative cash flow, repairs and other expenses in the meantime is the trick. In fact, if you can handle the bad times, real estate will always make you come out on top. Lack of cash reserves puts unnecessary pressure on you to do substandard repairs, accept less than qualified tenants and give into tenants’ demands for fear of vacancy.

When you have a sufficient cash reserve, you act rationally. You hold out for a higher sales price. You hold out for a qualified tenant. You leave properties vacant rather than rent to low-lifes. You call a tenant’s bluff when they threaten to leave. You take care of necessary repairs and improvements on your properties. It’s a whole different ballgame than operating from a lack of cash. Like I said, buying properties with no money down isn’t hard; it’s handling the cash flow. In other words, you can buy real estate without money, you just can’t survive in business without cash reserves. Thus, consider accumulating cash reserves before investing in rental properties.

Mistake #4: Being Greedy

Many investors get started flipping properties to other investors, which is a good idea to generate cash reserves. However, you must be realistic about how much profit is in a deal. If there is a potential for a $20,000 profit in a rehab project, you can’t expect to make $10,000 flipping that property to a rehabber. A rehabber has a huge risk in embarking in such a project and wants a large enough profit to justify the risk. 

(Get signed into our buyers list at Investment Property Des Moines  to get the UN-Greedy wholesale property)

For example, if a house needs $10,000 in repairs, the rehabber investor wants to make at least a $20,000 profit. If you find a deal with $20,000 in profit potential, how could you expect to get $10,000 for flipping the property if the rehab investor you flip it to is only going to make $10,000? You should be happy making $2,500 and moving on to the next deal. If you want to make more than $2,500 on such a deal, then you must find and negotiate a better bargain that has more profit potential.

Mistake #5: Treating Real Estate as Anything OTHER than a Business.

People are lured to real estate because of the quick buck that it promises. Don’t hold your breath, you won’t get rich quick. An “overnight sensation” usually takes about five years. More than ninety percent of the people who take a real estate seminar quit after three months.

Why the high fallout rate? Lack of action and unrealistic expectations. Real estate investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat real estate like any other business.

Give yourself at least six months to see if real estate works for you. It may even take a year before you buy your first property. Maybe in the second year you will buy three or four properties. If you work hard at it and keep your eyes and ears open, you may even find your first deal in 30 days. Certainly, you will not make money by talking or thinking about it; you must go out and take action.

by Attorney William Bronchick
Reprinted with permission – 2005