Becoming A Battle Hardened Real Estate Veteran Without All The Scars

Step 1 is always to determine the fair market value(FMV). As a real estate investor, you can always buy properties at the FMV. My question is why would anybody want to do that? Through careful selection, you can always find properties that are priced below FMV, regardless if they are existing or if they are a preconstruction project. The best way to determine FMV is to work with someone already familiar with the area or determine yourself through local websites showing recent sales histories.

Step 2 is to then determine the market trend for the area for which there are two critical pieces: 1) is the average price increasing AND 2) is the volume of sales increasing. If both are moving in your favor, then you have the comfort of knowing that the right trend is in place to keep prices moving forward. In stock market investing, there is the saying that the trend is your friend and traders frequently observe price and volume data to confirm the trend. If a hotly priced real estate market shows signs of dropping in volume, be very careful.

Step 3 is to learn about supply, especially in the preconstruction marketplace. In some areas, there are very few projects on the books and in others, there are 15,000+ units expected to emerge within 1 zipcode, in 1 year. Same is true for investing in houses. In you are competing with a bunch of new houses that are coming on-line, then rapid price escalation may be limited. For most savvy investors, they like to see lots of demand with very little supply which is nothing more than common sense.

Step 4 is to make your OWN opinions of the macro conditions of the local and regional marketplace. So, for example, if you are a strong believer that real estate is overvalued in the target area, why would you ever consider investing? On the other hand, if you believe that market forces will continue to escalate in the market, then why would you not be actively looking? As an example, some people believe that the graying of America is just now starting to drive people to warm, more attractive climates. Even though property values are high in these areas right now, are we going to see 20+ years of additional migration to them? You have to decide for yourself because we won't know the answer for another 20 years!

Step 5 is one of the most important risk management tools available to the investor in real estate. Each property has typically an inherent rate at which it can be rented, even if that is not your intent. By looking at rental rates, relative to the amount of principle, interest, taxes, and insurance (PITI) that you will have to pay, then you can understand the amount of cashflow that may be required to support the property. If your objective is to produce cashflow, then you need to be cashflow positive very quickly. If your objective is capital gains and the cashflow is negative, then you now understand what you may have to support on a monthly basis if things don't work out.

Deferred maintenance then becomes our Step 6. For an existing property, how much maintenance has the previous owner neglected that you will need to catch up? Be careful here since this can be one of the major places to get nasty surprises.

And now I saved the best for last: Step 7 is to determine your own personal risk tolerance. Some new investors look at a deal and only see the positive. This is a huge mistake. EVERY REAL INVESTOR I KNOW HAS LOST MONEY IN A DEAL but they gladly will do more. Why? They understand their risk's going in, they understand how to limit their downside, and the gains are much larger than the risks they are taking. If you were standing beside them and saw what they saw, you would gladly take the risk as well and rapidly ignore any small losses that you experience.

Hopefully this has given you a good start at learning how to analyze a potential opportunity. Obviously each of these steps requires additional work or training but they are what separate the new investor from the seasoned, battle tested veterans.

As part of a new web site that we just launched, http://www.GetPreconstructionDeals.com, I get repeated requests asking if a particular deal is good or not. While we can't answer this for individual projects, we can certainly look at what HAS to get done by the investor to dramatically increase the odds of a successful transaction.

Chris Anderson is a leading authority on preconstruction real estate investing. Get his 4 day e-mail course and a 33 minute video free today! Visit http://www.GetPreconstructionProfit.com & http://www.GetPreconstructionDeals.com.

In addition, Dr. Anderson is the on-line training coordinator at the Van Tharp Institute, a group dedicated to providing world class training for investors and traders.

The 1960s Buff & Hensman-designed Wong House has a pool, a walled garden and downtown and ocean views.

It seems as though actress Scarlett Johansson had no sooner sold her old place in the Hollywood Hills than she and her husband, actor Ryan Reynolds, closed on a house in Los Feliz for $2.9 million.

Completed a few years ago, a Normandy-style estate was built to look a century old.

Glen and Linda Keane felt guilty about tearing down the O'Melveny family home. After all, John O'Melveny was part of a group of Los Angeles businessmen who formed Lake Arrowhead Co. in the 1920s and oversaw the lake's development into a popular resort destination.

The mortgage giant quietly launches the HomePath program, which offers subprime-era terms for buyers: minimal down payments, no appraisals, no mortgage insurance and lower minimum credit scores.

If you're a buyer with little cash or a small-scale investor looking for a deal on a foreclosed house, a little-publicized national lending program could be just what you need this fall.

How some of our previously featured properties have fared in the sales market.

Buff & Hensman-designed beach house

Lenders lose an estimated $310 million annually in undervalued short-sale transactions, according to a study released in August.

Question: I am fed up with my homeowners association and successive boards for sabotaging owner requests for records and refusing to fix maintenance problems in common areas that directly affect individual units. I believe I have no other choice than to sue the association and the boards. What are the steps I have to take?

Keeping tenant out over concerns of illegal activities may be viewed as a 'constructive eviction.' Such moves as changing the locks to prevent access can bring significant penalties.

Question: I own a couple of houses that I rent out for extra income. Unfortunately, they are not in the best part of our town. I have a tenant living in one of them who may be dealing drugs or doing something else illegal because the police have arrested him several times. Every time he is arrested he makes bail and returns to the house in a day or so. Even though he pays the rent on time, I realize that I can't continue to allow him to live in my house. My plan is to change the locks the next time he is arrested, so he can't come back into the house. I know that I need to protect his property inside the house if I do this, but my plan is to move his belongings into a storage locker. I can't afford a lawyer to file an eviction case, so this is my only alternative. Will I be OK if I do this?

July's increase from June in the National Assn. of Realtors' gauge for previously owned residences follows two straight months of declines and a report that sales of such homes dived 27.2%.

An index of home purchase contracts for previously owned dwellings unexpectedly increased 5.2% in July over June, the National Assn. of Realtors said Thursday, a modest note of good news for the U.S. housing market.

Treasury bond yields, which influence the home-loan rates, have surged since Tuesday.

Mortgage rates fell for the 10th time in 11 weeks, setting fresh record lows, Freddie Mac reported Thursday. But a rebound in Treasury yields in the last two days raises the possibility that home-loan interest costs won't fall again next week.

The home builder's stock soars 11% after an announcement that there will be no action taken as result of an investigation into the company's accounting procedures.

Shares of Los Angeles-based KB Home soared on Wednesday after the home builder said an investigation by the Securities and Exchange Commission into the company's accounting and disclosure procedures had concluded and no enforcement action would be taken.