You are a Real Estate Investor. Perhaps you work at a 9 to 5 type job and perhaps you think you don't have the time or money to seriously pursue real estate investing. The difference between those that want and those that do is passion. You learn, you explore and as the passion for investing builds, it becomes a part of your life. It really doesn't matter if it's a seller's market, a buyer's market or if people have said it won't work in your area. You, and only you, are the one who makes it happen or not. No one can do it for you and there are no "magic" solutions or methods, it's hard work, but can provide the freedom and rewards almost everyone desires. This is written for those who want to change and would like a little help to make it happen.

The Tools for Foreclosure Investing

There are five basic tools required for successful foreclosure investing: 1. A notebook (I like the subject notebooks, wirebound on the side)
2. A pen kept in your car(maybe two, cars seem to eat pens)
3. A calculator (Nothing too fancy, just to do simple figures without making mistakes)
4. A Thomas Guide (This is the best way for finding locations and directions)
5. A mind willing to change behaviors and to learn new things. The first three are fairly self-explanatory, you aren't going to be able to remember everything you see and everywhere you've been, so you'll need to make notes to refer to later, the calculator will help when you are running numbers on a property.

Let's start with an exercise in behavior. Take your Thomas Guide and follow the routes you take to go to work, go to the bank and go to the grocery store. How many neighborhoods do you drive by that you never actually drive through? How many streets with how many houses are there that you haven't seen in the last six months? The last year? For the next week, leave for work 15 minutes early, pick one of those neighborhoods and drive through as many of the streets as possible at a fairly slow pace. LOOK at the houses, what condition are they in, how are they maintained, what kind of cars are in the driveways, do a lot of people park on the street? Any houses that are listed for sale and have flyers in front, you should stop, take a flyer and take note of the condition and appeal of the home. Then, after work, do the same thing in the same neighborhood on your way home. Need to buy groceries? Drive through a local neighborhood on the way. Same thing on the way back. If you always take different routes and see different neighborhoods, you will begin to see properties that don't fit in with the neighborhood. It might be the lawn isn't mowed or perhaps it's not maintained the same as the others, maybe there are too many cars parked in front or sometimes the house just looks empty. The point of the exercise is to train your eye and your mind to always look for property that doesn't quite fit with the surrounding homes. You take a flyer from the listed homes to start to build an idea of what homes might sell for in that area. Each day, switch to a different neighborhood, you'll see differences between neighborhoods and individual properties will start to stand out more when they don't fit the neighborhood. As you become more practiced, look at the style of building in each neighborhood. Does the style and quality of construction conform with the other neighborhoods you've seen? Even if all neighborhoods are maintained virtually the same, quality of construction can vary widely between adjacent neighborhoods. The ability to drive into a neighborhood you don't know and fairly quickly determine housing quality in relationship to surrounding neighborhoods along with establishing an individual property's quality to it's neighborhood is essential for successful investing. This will be discussed more in following chapters, but for now, start using tool # 5, your Mind.

What else can a Thomas Guide show you? Things look very different when you look at a detailed map versus driving in the same area. Look at streets and areas you know well. Identify the neighborhoods and how they change throughout the area. Major streets divide neighborhoods, neighborhoods usually get more desirable as they get closer to amenities(parks, open space, golf courses), they usually get less desirable as they get closer to impacts(freeways, commercial areas, high density residential). Look at your area on the map, then drive your area looking at the housing. Does it hold true? Sometimes it's just a little less maintainence, perhaps there are more rental properties than in other areas, but you will find that prices will also be lower for impacted properties. Properties nearer amenities will usually be highly maintained and sell for neighborhood top dollar.

If you've gotten this far, the two biggest problems of "I don't have the time and I don't have the money" have been addressed. 1. You can begin to learn about property and it's values by taking just a little extra time each day when you are going to be driving anyway. 2. You shouldn't have spent more than $35.00, most of that for the Thomas guide. Continue with driving different neighborhoods, expand into new neighborhoods and remember, you can't see what's there if you're driving 45 mph.

Determining Property Values

Property fair market value is determined by recent sale prices of similar properties in the same area. The sales assume a fully informed willing seller and a fully informed willing buyer. Let's say you are interested in 123 Main St. and want to know the current market value. First step (using your Thomas guide) is to define the neighborhood this property is located in and any likely impacts or amenities. You can do this because you followed the procedures in Chapter 1. Next, you need a source for comparable sales (comps) from the last six months. Realtors can provide Multiple Listing Service (MLS)comps for a given area, title companies can provide comps from tax records and there are a few on-line services that can do the same. Taking your list of comps, you drive by each comp noting condition, size, appeal and location. While you drive each one, look for properties that are listed for sale and take the same information for them also. Keep in mind that comps might have had work done since the sale, look for signs of recent work, especially on very low sale prices. Your last stop will be 123 Main St., the subject property. How does it compare to your comps in condition? Is it bigger in square footage or smaller than most? Is the lot bigger or smaller? Does it have the same number of bedrooms and bathrooms? Are there impacts or amenities close by that will affect the sale price in relationship to the comps. This is why comping a property is more an art than a science. From your comps, you want three neighborhood properties that closely match the square footage, bed/bath count and lot size of 123 Main St., your subject property. If those three are all pretty close in condition and there are no outside factors, the sale prices should be close together. Making any adjustments for size and/or room counts, the market value will be in the range of the 3 close comps. If there are a lot of properties listed for sale and they are all listed at a lower price, you'll need to look at the listings stronger, they could define the current top market value. But, if there aren't any current listings or just a few and those few are listed at a higher price, you might be able to support a higher value upon resale. But wait, you say, my subject property needs a new roof, there is no landscaping and the house hasn't been painted since it was built.

Market value is going to be determined by the area the property is located in. Rehabilitation (Rehab) is often a requirement to bring a property to it's Fair Market Value. Obviously, no one is going to pay market value for a property that needs significant rehab. That's where you, as an investor, come in with the knowledge and capability to accomplish a rehab allowing for the property to be sold at it's fair market value. Your objective is to acquire the property at a price low enough to allow for rehab and holding costs until the property can be sold earning you a profit.



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