As a general rule our investing business focuses on buying distressed real estate properties, rehabing them and renting them to good long term tenants. Over the past year we've been able to generate on average a 20% annual return for each single family house we've purchased using this model.

From time to time we need to generate capital to finance new acquisitions. Flipping retail homes is one way to raise relatively quick capital albeit it can take up to 6 months to get cashed out. Flipping is generally frowned upon by sophisticated investors and I for one generally agree. But there are times when waiting 5 to 10 years before cashing out of a rental property is just too long to wait to unlock your equity in an investment.

We found a good deal on a 4 bedroom 2.5 bath 2800 sq ft home in a strategic area of Michigan for about $57,000. We intend on investing another $35,000 into repairs and improvements. Comparable homes in the area are selling between $130,000 to $150,000 in under 6 months. This would give a net profit of between $38,000 to $58,000 before closing costs are factored in.

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If you are a real estate professional then you know about the gross income multiplier, GIM or the formula that determines the value of rental real estate. It has been used for decades.

There are many schools of thought on how to determine the value of rental property but I always use my readings as a rule of thumb.  Any real estate textbook will tell you not to invest in a property with a GIM of more than 8.  The formula is simple enough: divide the price by the gross annual rents to get the GIM.

With this definition in mind it seems that particular author wants me to never pay more than 8 times the annual rent for a rental property.  This helps the buyer open their eyes to mow much of a rental property they can afford to buy.  It makes plenty of sense really.  Seems that if a property was selling for 6 times the rental income, then that was a really good deal.  I mean anything higher than 8 times the rental income and that becomes a dangerous proposition.  This simple method makes it easy for the average Joe to know what they are getting into. 

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Decisions, decisions, decisions! For most people buying a house is a MAJOR decision. There are so many things to take into consideration it can be overwhelming. But numero uno on almost everyone's list is property value. Most lenders have licensed professional appraisers to estimate the value of subject property for a loan.

 But here's the rub: an appraiser may provide their professional opinion through analysis and experience, but they do not create a property's value.  Instead, market value is based on the philosophy of "what the market will bear." Translated, that means what people are willing to pay and what price a seller willing to accept.

In the most traditional sense real estate market value is about speculation, pure and simple. Speculation is the probable price a property will sell for in a competitive open market under any condition at a fair price. Ideally, if a house is in good condition, the layout is pleasing and it's favorably located, a house is usually only on the market for a few months. If it sells within that time it's probably fairly priced. If it doesn't, a reasonable assumption is that the price most likely is too high, and the price needs to be renegotiated for a sale to occur. 

Many real estate brokers will purposely set a price higher than the neighborhood market will bear. Initially, most sellers are only too willing to encourage their broker to do this because; well ... who doesn't want to get the most money they can for their home? Unfortunately, this M.O. may drag on for months and months. Great expectations can turn into disappointment. Eventually, even for sellers who have deep pockets will get tired of shelling out money for two homes.

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Everyone is always looking for a good deal. Real estate investors are no exception, which explains why the foreclosure market is booking for first-time buyers. These first-timers are seeing home prices at 10 to 40 percent below market value, which can make for an enticing offer, especially when the surrounding area is experiencing growth.

No matter what the talking heads on info-mercials and late-night cable TV say, not all foreclosures are what they're cracked up to be. While there may be some great foreclosure investments, you will need to know where to find it and how to make a fair offer in order to successfully acquire it. Lenders can practice more restrictively in markets where home prices continue to rise. When you couple that with the influence that home owners have over the selling price, it can create a situation that is less than friendly to buyers.

The purchase of a foreclosure property requires that the purchaser fully examine the property from every angle, financially and structurally. Patience really is a virtue, even in this robust market with many options that superficially appear to be bargains. In order to be considered a serious buyer, your offer to the seller should reflect this image. It is the well-researched offer that makes for a realistic starting point in the negotiation round.

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Investors and Agents share some beliefs but fundamentally, they have different mindsets. Combined with both skillset and mindset can be a valuable tool. It has been known, that investors when dealing with real estate agents can be difficult, but a necessary part of the buying process. Agents have full access to the Multiple Listing Service (MLS), which shows all properties for sale in any given area. They will also have more detailed knowledge about properties, sellers and trends. This can all be very valuable information to the sharp investor. There are agents that invest and investors that have gotten their lisence to gain the benefits of access to the MLS and CMA.

When you don't have the 2 mindsets, you'll have to learn to appreciate what each other brings to the table. The hardest part about working with an agent might well be putting together a deal. Agents typically work with home buyers in conventional deals that seek to live in the property purchased. Agents prefer deals that consist of a standard down payment, a good credit score and getting a commission with little hassle. For the most past, they are not receptive to unusual offers and do not pursue creative real estate transactions. It is not likely that agents will even consider a "nothing down" offer.

For agents, the bottom line is sales and commission. They are also very much a relationship-based business enterprise. Building an open and honest working relationship with an agent up front can pay dividends later on when it comes time to close the deal.

Below are a few more tips that can help you navigate the potentially choppy waters of dealing with real estate agents:

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