QUESTION: WHAT DO REAL ESTATE AND
FISHING HAVE IN COMMON?
Picture this: It’s a spectacular spring day. As
you drive to your next listing appointment,
you pass a beautiful lake. Glancing across
the blue water, you notice something odd.
There are dozens of fishing boats bunched
close together on one area of the lake. But
on the other side of the lake there are just a
few boats spaced far apart.
What does this scene have to do with real
estate? Well, the lake is a good analogy for
the real estate business. The bunched-up
boats represent the majority of real estate
salespeople, striving in a crowded marketplace, competing for the same goal: residential sales.
Meanwhile, on the other side of the lake,
the smaller number of boats have open
space and fewer competitors. They represent
real estate salespeople who confidently work
with investors. The National Association of
REALTORS® reports approximately 20% of
sales are to investors. So, if you’re not comfortable dealing with investors, you’re missing one of every five buyers! But, with a bit
of dedicated effort you too can capture your
share of this rewarding market.
MIREALTOR® | JUNE 2014
18
Here’s a key point: our focus is on real estate
investors, not real estate speculators. There’s
a huge difference. Wise investors know
they’re buying a business when they acquire
a rental property. It has to be analyzed prior
to purchase and must make financial sense.
A speculator often buys a property without
analyzing the numbers (or even knowing
how to analyze the numbers) and hopes it’ll
increase in value in the future. That’s asking
for trouble.
You might be thinking, “Geez, I’m not good
with numbers. In fact, I hate numbers!” But
don’t worry – analyzing a property does not
necessarily mean memorizing a bunch of
complicated formulas. Most of the math is
simple: add, subtract, multiply and divide –
you learned it in grade school!
It’s useful to think of a rental property
as a three-legged “money machine.” Each
leg must be strong or the money machine
doesn’t work properly. The three legs are income, expenses and financing.
The three legs work in harmony to create
the four financial benefits of owning investment real estate. If you understand these
benefits and can communicate them, they’ll
enable you to work effectively with investment buyers and investment sellers.
HELPING BUYERS: THE FOUR FINANCIAL
BENEFITS
In order to “talk the talk” and be equipped
to help buyers, put yourself in the buyer’s
shoes. Think like an investment property
buyer. How does this “money machine” work?
It can produce four financial benefits:
1. CASH FLOW BEFORE TAX: Once you collect the rent then pay your operating expenses and mortgage, there ought to be some income left over. All investment real estate has
income – unfortunately it’s not always positive income! So, be careful and always run the
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