5 Buying Mistakes That Rob Real Estate Profits

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Topics: Buying & Selling

I don't think that bidding the purchase price up is the best way to succeed financially in real estate, or for that matter with any other product. In me relatively dormant market of the past couple of decades, I made a fortune and retired on my rental income by deliberately avoiding doing what my competition was doing.

Let's contrast what conventional buyers do that I don't do:

1.    They find properties through For Sale by Owner, and Broker's signs posted on properties, and from newspaper ads. In so many words, they wait until the seller, or the seller's agent, takes the initiative to price a property and to present it for sale.

2.    They compete to buy at foreclosure sales, IRS tax-lien auctions, probate, and bankruptcy liquidation sales that are advertised in the legal notices, or in commercially published lists read by increasing numbers of competing buyers, including Brokers who are buying for their clients.

3.    They divide their profits by buying properties and/or assignments of purchase contracts from “wholesaler dealers”, or from other entrepreneurs, who have previously negotiated price and terms and contracted to buy houses. Thus, they are deprived of the opportunity to use their own negotiating and financing skills.

4.    They consume their available capital; thus, limiting future opportunities by buying with a hefty cash down payment combined with conventional institutional financing to complete their purchase.

5.    When they use private financing, rather than take an entrepreneurial risk of entering into a purchase contract, then marketing their contract to competing buyers, they don't enter into a binding contract on their deal until they've first obtained the approval of their financial backer to lock in their sale.

Take an objective look at the above ways that people buy houses and you'll see that they all share a common flaw. They don't differentiate between, or exploit any special skills, talents, financial strengths, or connections of the individual buyer. Instead, they place the buyer into direct competition with just about anybody who can read the newspaper or answer the telephone.

I don't like competition. If I had my way, I'd own the only well in the desert, or the only lifeboat near a sinking ship. And I'd make a lot more money because of my monopoly position. Your individual effort, initiative, skill, creativity, and savvy can give you a monopoly in your market, but only if you set out to use the personal attributes you possess to your own advantage. Here's what I mean:

When I've bought houses, I've rarely aped what others do, or what passing gurus recommend that I do. I've always tried to find the most difficult and complex way to do things! Why? For a good reason. Doing the difficult and the complex, distances me from competition.

Here are some of the things that I do to find houses to buy:

1.     I go out and look for houses to buy that the owners have never listed or advertised for sale. In short, I use my personal initiative to find their houses ahead of the competition. My success doesn't depend upon sellers using their initiative running ads, posting signs, and/or contacting Brokers to sell their houses. As a matter of fact, until I've pointed out the benefits of selling their homes tax-free to me to get money to pay pressing bills, and/or to buy a better house financed at today's lower interest rates, most of the people who have sold me houses hadn't even thought much at all about selling their house.

In order to find these owners, I've had to spend many hours each week actually talking to residents in neighborhoods that I'd previously selected as potentially the most fruitful for my purchases.

For example, if I were looking for “fixer-uppers” I'd prospect in older middle-income neighborhoods rather than low-income neighborhoods. Why? Because, it's my perception that the vast majority of those who fix-up houses for resale, buy and sell in low-income areas. My selection of middle-income neighborhoods avoids a lot of competition, and virtually assures that someone who buys my fixed-up house will be able to qualify for a loan that will cash me out.

From Jack Miller's book Millionaire Makers

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