The Real Estate Funnel - $ drip out the end

I'm adverse to risk especially when it comes to real estate investing.  As a result we look at a lot of real estate in an effort to understand the market and more importantly the market trends.  We tend to focus on a given area or neighborhood and then study it until we know it cold.  When I say "know it cold" it means we know the profile of all properties in that area including:

• General trends and demographics of the area - are they coming or going?
• Age and condition of the properties in the area - just because they are older homes does not mean they are not taken care of.
• Home owner assoication or other fees - we just bought in a neighborhood that had a $100 application fee and $600 one time fee for new owners.
• Past sales including asking price, sales price and days on market - Are they holding out and holding up values or are they leaving in droves?

To get to this high level of knowledge it takes us a lot of work and we find that the more we study an area or neighborhood the higher level of confidence we have when we make an offer.  The confidence is on both obtaining the property for a great price but also knowing that we will be able to resell at a higher price after the property is rehabed.  Obviously the bigger the difference the more money in your pocket at the end of the day.

Some of the ways that we learn about an area or neighborhood include:

• Team with your realtor to provide you regular updates on whats for sale and what has sold.
• Drive the nieghborhood and talk to people that live there - you'd be amazed what they'll tell you.
• Visit open houses to get a feel for what the general condition of the properties are. 
• Get you realtor to show you properties that may not have open houses.
• Ask about association fees and special assessment - past and future.
• What amenties are included with association fees - we live in FL and alot of communities are maintenance free.
• Have any properties been updated?

After doing this on a regular basis you should get to the point when a property comes on the market you can estimate within 1-2% of what the listing price should be based on past sales without even seeing the listing.  The greatest advantage that we have found is that as properties come into the markets that we are monitoring we can act quickly when we see a bargain.  Couple that with some circumstances around the buyers motivation (death, estate, short sale, bank owned, etc.) and you could have a winner.  The other key is to know you market cold and move fast.  If you have the knowledge you'll be able to manage the risk even in this market.

Manage the risk through knowledge and don't be afraid to make some crazy offers.  You just might find you end with with a great piece of property.