Buying Good Deals & Making Big Money: Everything You Need to Look For

It was our first property, and I couldn’t help but think that it was a total piece of garbage.

Cracks in the foundation, termite damage, tenants that valued cigarettes more than they valued paying rent, a stone’s throw away from LA’s 101 freeway.

Maybe if we were lucky, the dead grass around the house would catch on fire, ignite the rotting wood supporting our house, and burn the place to the ground. We’d be doing the city of LA a favor, and we might even make some money off our insurance policy.

One year later, (even though we managed to make good money on the deal) I vowed that we would never end up in this situation again.

Because of my constant yearning to burn the first place to the ground, part of my vow was to create a list, which I called my “fire insurance policy.”

These “must haves” were created to keep us from accidentally burning the place down. Instead, they help us find and purchase stellar deals.

Fire Insurance Criteria:

Marketability:

In an age of swiping and two second attention spans, this is critical.

After I know what I can get in my market, I ask myself, “If I was a home buyer and scrolled past this house on Zillow, what would I say about it?”

Would I say, “Wow, what a pain in the ass it must be to clean those huge windows!” Or would I say, “Imagine how nice it would be to crush some beers on that porch!”

In other words, you want to avoid buying places that have obscure qualities that could turn people off. Conversely, you want to actively search for places that have a unique characteristic that people need to have, regardless of whether or not they even know it yet.

Location:

It’s a tale as old as time: Location, location, location.

Location is pretty damn important. Afterall, would you rather live in the house next to the local sewage purification and refiltration plant? Or would you rather wake up in the house that’s walking distance from the local coffee shop?

Depending on your interests and hobbies, I’d guess option two.

The Angle:

What’s my angle here? Can I come to the seller of the property with a unique offer that no one else has thought of?

Maybe the seller is going through a divorce and wants to close on the property quickly. Swooping in with an all-cash offer is a sure-fire way to get their attention.

Maybe the seller doesn’t have a place to stay while they search for their next house. Offering them the ability to rent the house after the close and until they find their next property will definitely go a long way.

You’d be surprised at how far a little research can go!

Value Add:

Is there a value-add opportunity?

Value-add opportunities are everywhere. An extra-large guest bedroom that can be converted into two bedrooms, an awkward space in the living room that can be used as a bathroom, cabinets that could use some sanding and paint to make them look brand new. The options are endless.

Put holes in walls, hang-up doors, slap in some windows – whatever it takes to command higher rents and property values.

The Norm & Karen Test:

Bring the image to mind of a nice, normal couple.

Let’s say that their names are Norm and Karen.

Norm works as a urologist and makes the most of his weekends by smacking around a racquet ball and mowing perfect lines in his well-manicured lawn. Karen, a stay-at-home mom, spends her days making bag lunches for the local homeless shelter and her evenings knitting cute mittens for her cats.

Would Norm and Karen be happy in the house that I’m about to buy? Is it functional for them and their 2.5 kids (John, Jane, and J 2 XE)? Is there anything about it that might put Norm in the county jail or Karen in the Psyche Ward?

Time & Money:

Most of us have one and not the other, so this one’s going to be on you. 

If you’re someone that has wheel barrels full of money, maybe a freshly remodeled house, that will generate consistent income, is more your speed. If you’re broke, maybe a fixer-upper that no one else wants to touch will be a better option.

In this sense, real estate is much like a buffet. Those of us with money to blow guzzle down 4,000 calories worth of lean steaks at the Wicked Spoon in Las Vegas. While those of us playing it a little closer to the vest take down 4,000 calories of pizza, fries, and ice cream at the Golden Corral.

When it’s all said and done, we all walk in knowing what we can afford, and we all leave feeling like we got a good deal.

Such is the world of real estate investing – we all have different motivations, circumstances, and means. But when it’s all said and done, each of us has the same end in-mind: Make boat loads of money that couldn’t be made elsewhere.

Before you head out in search of your next deal, I suggest that you take the time to develop your own “fire insurance policy.”

Copy mine, create your own, or do some combination of both – whatever it takes to make a deal even sweeter and ensure that you don’t end up burning the place to the ground after closing.