The Second Rule of Thumb and The Art of Getting the Right Price!

When you are determining how much to offer on a property, it is very important that you look at the net operating income of the property. You want to make sure that you are buying a property for a great price in your area. There are a lot of factors that determine if the price is a good deal. Depending on where you are located, you want to aim for a purchase price of $5 to $15 a square foot. There will be markets that are outside of this range, but the rents should offset the price difference. If you are unable to cash flow, what is the point of owning a property?

Ideally, you want to find a property where you can double the value of the property in a three to five year period of time. For example, if you are able to find a self-storage facility for $1 million then you want to be able to sell it for $2 million plus your investment costs to get the property up to that amount. So, if you have to spend $250,000 to renovate the property to increase the value, then you actually want to be able to sell the property for between $2,250,000 and $2.5 Million. This way you are recouping your expenses as well as increasing the value of the property. You need to have that large increase in order to entice investors to work with you.

When it is possible, you want to find properties that are poorly managed rather than properties that need a lot of work. Ideally, properties that need a little work and much better management are going to get you the best increase in value. By improving your occupancy levels and bringing your rental rates up to market value, you are able to increase the value of your property.

Each time you are able to prove to your investors that you found a good opportunity, they are going to be more willing to work with you again. Having cash makes your offers stand out. You want to make sure that you don’t offer to much for the property. You want there to be enough profit in the property that you can attract good investors who will want to work with you over and over again.

When you find properties that are performing well, there isn’t a lot of room for negotiation or improvement. These are not the types of properties that you are looking for because there is not a lot of profit to be made. You are looking for properties where you can create value with better management and a makeover. Look for properties like this so that you can get the maximum return on your money. As always, happy investing.