Real estate investing may not be everyone’s cup of tea, but many people that take the time to taste the tea know that it can be profitable. In fact, there are many different ways to make substantial profits in real estate investment deals.

But it starts with you analyzing the deal to make sure it’s a profitable one. And when the deals are profitable, you will certainly be well on your way to success.

So why is analyzing the deal so important? In real estate investing, you make your money when you buy, not when you sell. So finding a motivated seller – an owner who for whatever reason is desperate to unload their home – that will offer you a good deal in exchange for a quick sale is the single most important factor to doing the deal and your real estate investment success.

Surprise. Surprise. Most sellers want to sell their property for full fair market value. In fact, some owners are so proud of their real estate they want you to pay MORE than fair market value. Most real estate sellers don’t want to give you a 30% discount on fair market value. But this is what you need if you intend to fix up and resell the property for a profit.

However, once you find a motivated seller, you must be able to quickly and accurately analyze each real estate investment deal so you’ll know exactly when to proceed and when to pull the plug.

In the case of junkers, you’ll need to know how to find the after-repaired value (ARV) and the cost of the repairs. If you’re just getting started, you will probably rely on a real estate agent to help you obtain “comps.” “Comps” or comparables are the recent sales of similar properties in nearby areas that you will use to help you determine the market value of a property.

Even if you find the right property at the right price, determining the cost of the repairs is the second crucial piece of information you need to make the right investment decision. Again, if you’re new to real estate investing, you will rely on contractors to help you determine the cost of the repairs. You’ll want to call at least two contractors to give you the repair estimates.

Once you have determined the after-repaired value and the cost of repairs for the property, you will apply a proven formula to help you decide what to offer the seller for the property. The standard formula: your “maximum allowable offer” (MAO) is 70% of a property’s projected “after-repair value” (ARV) minus the repair costs.

Let me reiterate that this is the maximum allowable offer. You would be wise to submit an offer that is less than the MAO to give you some room for negotiation with the seller. The MAO provides you an objective measure to use when submitting an offer.

A “seat of the pants” or “relying on your gut feeling” or “feeling lucky” approach is best left to fiction writers and their novels. Seasoned and successful investors always know the ARV and the cost of the repairs when analyzing the deal.

Cutting corners, either by design or through ignorance, will put you in a financial ditch that will cause you to give up on real estate investing. Give up on real estate investing and you give up a lot. Unfortunately, I’ve known some folks that gave up prematurely on real estate investing, but they will never know they forfeited their future.

If the seller accepts your maximum allowable offer, you have a good buy. You should always have an earnest money contract with you so you can get the deal wrapped up. You’re on your way to a profitable deal.

However, if the seller is unwilling to accept your offer for whatever reason, then it’s a good bye. Of course, not all good-byes are permanent, so make sure the seller has your name and phone number in case their circumstances change and decides to sell.

Source: http://vocationalplace.com/ ; By Robert Charlson