Real Estate Investor Articles

Last night I spent some time playing a real estate investing simulation game and I was reminded that the quantity of the offers you make to purchase property really does determine the quality of the real estate investments that you will eventually own.

In this particular game, my strategy was to acquire a large amount of real estate in order to resell the ones with significant equity immediately to make large chunks of cash. In this way, I built up my capital while also keeping the occasional property as a long-term rental.

I began by making an offer or two that would allow me to make a nice profit. I did this by factoring in the cost to purchase and my cost to sell, as well as my holding costs while I was trying to sell it.

If you do some very quick, big picture math, you can see that there are about 3% in costs when you buy, about 5% in holding costs while you are trying to sell and about 10% in sales costs when you do sell. So, in order to get profitable deals, I made offers of about 25% below current fair market value in this particular game.

What occurred to me as I made one or two offers was how few of them were actually accepted. I needed to make more offers. I started to make offers on every property that became available, because every property, at a certain price, could be a deal.

Ultimately, I ended up making about eight offers for every month in the game and ended up with a good number of properties that I was flipping for nice little chunks of cash. It got easier and easier to keep doing this. Money was coming in. I had properties that I was buying. I had properties that I was selling. I had most of my offers declined, but I would get the occasional deal or two accepted and that kept the whole machine rolling.

What was interesting to see was that even the deals that I decided to keep as long term rentals were only good because I had originally bought them at a discount with the intention of selling them quickly. The ones I kept had exceptionally good rental income, but I never would have gotten them had I not made a lot of below market offers. This was something I already knew but it was really striking to see how brilliantly it worked over the course of the game.

So, a gentle reminder that the more offers you make, the better the real estate deals you will get.

Until my next post,

James