Buying a home is one of those things that can go from really good to devastatingly bad in the blink of an eye, if it’s not approached correctly and carefully.  For those of us who buy and sell homes for a living, it is our job to understand what to do and when, and more importantly the red flags of caution to look out for along the way.  But the vast majority of the population will only go through this process once or twice in their lives, and the experience can range from the making of a dream come true, to the manifestation of the buyer’s worst financial nightmare.  In most cases, the difference between those two comes from knowing a few very simple things, and going through the right steps in the right order before you simply jump in with both feet.
By far the most common and crippling mistake made by inexperienced home buyers is their failure to budget properly.  Budgeting does not mean looking at a printout of your income and a printout of the payment plan of the home.  It means taking months beforehand and systematically (and thoroughly) tracking every dollar that comes in and out of your possession.  Generally speaking, income is easy to calculate.  But understanding your expenses means writing down everything you spend money on—from subway tickets to movie tickets to plane tickets.  Whatever the cost, you need to have an understanding of how these things add up over time, and how much of your income is really tied up in the way you live.  When budgeting, you must also bear in mind the new costs of owning your home—insurance, property taxes, maintenance and furnishing to name a few.  Homeownership is a good investment, but we all know it takes money to make money, and owning a home costs a lot!
Another common mistake arises when the buyer does not prepare credit reports and loan approvals in a timely fashion.  This process must be done first, while budgeting but before even searching for homes.  Getting all three credit reports before going to the bank for a loan will help give you a sense of where you stand and what you can expect, but more importantly it will allow you to scan for errors.  Credit reports are notoriously riddled with damaging errors, and banks don’t know or care enough about you to investigate.  The onus is upon you to make sure what the banks see is an accurate reflection of your credit history.  Once you’ve done this, be sure to go to your bank to get pre-approved for a loan before searching for a property.  This is because even in a buyer’s market, getting what you want is always competitive, and every single seller on the market would prefer selling to a pre-approved stranger than to a stranger for whom no institution has vouched.  This is common sense, but many rookie home buyers find what they want, and then try to go get the loan, only to find that in the time it took to acquire approval for the loan, the home was sold to a pre-approved buyer.  Do yourself the favor, and get your credit report and approval up front.
Other mistakes to avoid are not using a real estate agent (especially if you’ve never done this before, the cost of making a mistake on your own will almost always be greater than the cost of the agent, plus they will do most of the work for you!), getting emotionally attached to a property, skipping the home inspection (often a function of being emotionally attached to a property), and choosing to live in the wrong environment (sure the home is great, but how’s the neighborhood?).  These are just a few of the myriad things to consider steering clear of when buying your home.

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For whatever reason, most people take things that come from the government at face value.  While they may not like an issue, and it may cause them to vote differently in an upcoming election or spew bitter chatter around the water cooler at work, chances are they are going to do nothing but comply with whatever the government tells them.  It’s no surprise then that, despite the stressful economic times over the course of the last decade, most people do not carefully review their property taxes.  Again, they may see their tax bill, resent it, vote differently, and complain to friends—but you can bet they’ll be paying it.

More and more people are realizing that their property taxes are like any other bill, which should not only be carefully reviewed every time they are issued, but also investigated for any errors or discrepancies which may cost your more money than you owe.  Just because it comes from the government, doesn’t mean you can’t appeal for what is rightfully yours.

All but a negligible number of these discrepancies arise during the appraisal and assessment process, which (at the level of government) is notoriously riddled with errors and improper estimations, leading to distorted market values and tax assessments.  It may be hard to effectively appeal a nationwide rise in taxes, but it’s surprisingly easy to appeal errors made at the individual property level (well, easier than most people think it would be to deal with the government).

The problem most people encounter with appeals is not researching the process for local tax appeals (every community is slightly different), selecting the wrong strategy or approach, and being delayed months or years by having to go back to the beginning of the process.  In most cases, people just give up.  But with good planning, or the help of a good tax attorney, and a solid understanding of the requirements of eligibility for appeal and correction, the government is certainly open to making adjustments to your taxes.  This is undoubtedly your biggest regular expense, and making adjustments that are owed to you could save you hundreds or thousands of dollars on an annual basis.

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By far the best way to make money in a capitalist economy is to know something.  The more you know, the more opportunities arise for you to translate that knowledge into tangible form—namely, money in your pocket.  Dealing with taxes is no exception; actually there may be no better example of turning knowledge into money.  If you put taxes into very simple terms, everyone pays some amount related to their value.  If you normalized the amount that everyone pays in taxes to exclude consideration of the taxpayer’s value, you would see a fork in the road where you can pay the standard amount with no exclusions or deferrals, you can make a mistake and end up paying far too much, or you can use your knowledge to keep the money in your pocket where it belongs and out of the hands of the government.

In 1997, the laws governing tax exclusions for home sellers were made much looser.  Before the change, someone selling a home would find it very difficult to meet all of the requirements to get a tax exclusion on gains up to $125,000.  But now, it is relatively easy to qualify (especially if you are aware of the requirements and standards of eligibility going into the purchase of your home—and if you are a real estate investor, then hopefully you are aware of such matters).  A single homeowner can altogether avoid capital gain taxes up to $250,000 on the sale of a home (a married couple can skirt up to $500,000), provided a few conditions are met.

First, the home being sold must be the sellers principle residence for at least two years out of the five year period leading up to the date of sale.  The two year period does not have to be consecutive, and the requirements do not speak to what happens in the property during the time when the seller is not residing there primarily.  Secondly, this is a tax exclusion which may only be utilized once in a two year period (with some exceptions).  Thirdly—and this is really more of a help than a disqualifier—if it is a couple filing for tax exclusion, only one spouse has to meet the residency requirements cited above.

All said, the eligibility requisites are not too stringent, and it is important to take advantage of this opportunity to save an enormous amount of money upon sale of your home.  Further, if you are a career investor, consider this opportunity when designing your investments and living considerations, because it may just be worth living in an investment home for two years to earn back the money that would otherwise have gone to the government when you resell!

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Most of us in the business of selling real estate are unsatisfied with our ratio of listing presentations to sales.  Ideally, we’d all like to sell a house every time we present one, but obviously it doesn’t work that way.  In reality, there are ways to maximize the use of your time by closing deals on more of your presentations.  The key, in many cases, is simply persistence.

Everyone has had the feeling of wrapping up a really good presentation, and sitting down to talk it over with your prospective buyers.  You come to the table confident about the tour you’ve given and the response and interaction of your customers, and you’re ready to do a deal.  But you sense their hesitation, and when it comes time to talk brass tax, they begin to pull away.  The most common line is, “We need to think about it.”  Clearly, there is nothing wrong with thinking about a major purchase, and you should encourage your buyers to consider the decision seriously before signing any contracts.

But the mistake many investors/sellers make is to allow the buyers to simply walk away when they say they need some time to think.  Whether or not you expect a call back from them eventually, allowing potential buyers to get up from the table and leave is a resignation of failure on your part; and while many people consider persistence in sales too be tasteless, keeping your customers interested and engaged can be done both tactfully and gracefully.

One of my first observations of sales as a kid was watching a sales manager at a fitness gym.  His job mostly involved employing borderline sales tactics to sell memberships, but that experience offered some valuable fundamental lessons about sales which can be applied in any industry—but particularly in real estate sales.  You never, never tour a new customer and let them leave.  When they say they want to think about it, you offer to think it over with them.  To hash out all the things holding them back from moving forward with something they want to do for themselves (after all, they got up and came to the gym, or attended your listing tour, or sought out whatever else you may be selling).  Offer to discuss the issues, to figure it all out together, now.

If not approached tenderly, this effort to maintain involvement can understandably be mistaken for prying into the buyer’s personal affairs, but you can always appeal to your experience with helping buyers and sellers through many transactions to encourage your customers to open up and share with you.

You will be surprised at how often simply keeping the conversation moving along (as opposed to allowing buyers to get up and walk away) can open the doors that ultimately lead to a sale.  As silly as it sounds, sometimes a buyer wants to feel wooed, like you care enough about their reasons for buying to get involved and help them work through their issues by providing information and expertise.  After all, you are a professional, right?

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Thinking with one’s emotions is rarely—if ever—a reliable way to earn a profit, in any industry.  In real estate specifically, trends tend to be more pronounced because any associated data relies heavily on a small number of very large transactions (as opposed to, say, the data pertaining to grocery store sales).  This means that any feature of a normal business transaction is going to be expanded and multiplied in a real estate transaction, where more money, more time, and therefore more emotions, are at stake.

When I say thinking emotionally, what I really mean is relying too heavily on whether or not you like the property, as opposed to whether or not this is the rightproperty for you.  For the first-time investor or home-buyer, perhaps the sheer excitement of going through the process for the first time will be enough to skew your opinions of the home.  Remember one thing: the first place you look at will only very rarely be the best option for you.  In order to make savvy business decisions that will result in profit rather than loss, you should expect to turn down far more offers  than you accept, which means you can pretty much expect that if you take 50 tours, the first one is not necessarily going to be the best one.

With that logic in mind, be wary of every tour, at every step of the way.  If you are excited about moving or home-ownership or the start of an investment career, remind yourself to look for reasons not to purchase the home, rather than the reasons to do so.  In any house you look at, you will find plenty of reasons to buy it.  Maybe you will imagine the color of the walls, or the arrangement of the furniture, or what it will look like with 3 kids and a dog running around.  These are dangerous sentiments, which all speak to an emotional involvement in your decision-making process.

Instead of the walls, furniture, and kids, why don’t you spend some time and energy coming up with all the features of the house that are going to inevitably result in not only a hassle for you, but also a significant cost.  Repairs, modifications, and updates are the big ones.  You almost never see a house sold in perfect, up-to-date condition, and it is of vital financial importance to know what you’re getting into before you sign the contract.  Basically, as you look at properties, try to talk yourself out of buying it.  You should be able to.  When you absolutely can’t come up with an argument against the property, and you are confident that is not the result of some arbitrary emotional attachment to the property, then you have found the right deal to pursue, and your next (or first) investment property!

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When thousands of your hard-earned dollars are at stake, it is important to know how to capitalize maximally at every opportunity that presents itself during the sale or purchase process.  A huge part of that comes with good negotiating, where you stand to earn or lose more money than at any other single stage of the process.  Good negotiating means more than simply making good decisions based on the numbers; it means playing to the psychology of the opposing party, and from time to time even bluffing.  In negotiating, one form of bluffing is the walk-out, which will be examined in depth.

When you walk out of negotiations, you feign disinterest in the deal and leave the discussion altogether—or at least you make the other party think you’ve left.  In fact, by acting disinterested, you can often generate a sense of urgency in the other party, and that will lead to lower offers (or higher, if you are selling and refuse a buyer’s offer altogether). This means more money for you when the deal actually goes down.

The art of walking out is in the timing and the effect.  Good timing means only walking out when appropriate (it only works when a deal involves either a lot of time or a lot of money, or both), and only after having negotiated pretty extensively.  This is to create the impression that you are an interested buyer/seller, but there is something specific that is ultimately holding you back (i.e., the price).

The effect you create is what will allow you to gracefully reenter negotiations following a walk-out, without seeming too desperate or indecisive.  If you offend the other party by being rude or curt, you are not likely to see a better offer down the road, and reentering negotiations will be uncomfortable if not impossible.  At the same time, if you walk out gracefully but return and appear more desperate, then the other party will acquire a sense of leverage and use it to raise the price.  Instead, return with an offer prepared, making it apparent that you left negotiations, decided you did in fact want to take part in the transaction, and determined the price that would make it work for you.

Walking out of negotiations can be an effective way to get a better deal (and remember—you make or lose your money when you create the deal).  If managed responsibly, without offending or appearing weak and desperate to the opposing party, it can be an effective strategy.

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How many small-time investors do you know who have cut-and-run in the last five years due to economic conditions?  Money is tight everywhere, and that means our industry—which hinges on the sale and purchase of huge items and enormous changes in the lives of the parties involved—has suffered dramatically as a result.  Simply speaking, people don’t like to make big changes with a great deal of risk involved, when they don’t have many chips to play with (the difference between life and poker is that in life when your chips get low, your responsibilities remain just as high).  So is this the end of the real estate investment industry?  Or are we destined for another comeback, back to the glory days of twenty and thirty years ago when any property you bought was bound to soar.

In my opinion, it’s important not to dwell too much on the hits you’ve taken in the last five years, but rather keep your eye on the big picture.  The big picture is that, although things are stagnant now, properties are still worth fortunes more than they were 30 years ago (often by a factor of 10 or more).  The point is, if you own real estate, you likely own something that is slowly but surely increasing in value.

With the macro-view in mind (that real estate is not a dead industry, and as soon as people have some money in their pockets, it will return to a stable state of reasonable navigability), now it is time to look at what is happening right now—the micro-view.  You keep hearing that it’s a buyer’s market, because urgency tends to fall on the side of the seller, which means leverage ends up in the hands of the buyer.  But for investors, what are you supposed to do with a cheap property that you now can’t sell for profit?  Well, if you’ve done your homework and found a good deal, you can resell any property for profit in any market, but that doesn’t mean investors are not scared off by the prospects of owning too much property in a recession.

Remember what we said about the greater trend though, that demand for property over time continually and gradually increases.  If you buy cheap now, at a good deal rate, imagine what your property will be worth 10 or 20 years from now.  Keep the big picture in mind, and look for ways to take advantage of the buyer’s market (i.e., be a buyer!), and wait for a seller’s market to become a seller.  It’s simple logic, but it works.  Consider owning a property which will generate income during your period of ownership—a rental home, duplex, or multiplex building.  These are good ways to earn money to offset the cost of owning and maintaining your property while you wait for the property to become more valuable on the market—your queue to collect your cash!

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In the world of professional real estate investment, it is widely understood that marketing is one of an investor’s top priorities—if not the distinguished number one.  You can’t do business without customers, and you can’t get customers without reaching out and bringing them to you.  If money doesn’t grow on trees, then it certainly doesn’t earn itself either.  So everyone knows you have to be willing to spend some cash on your marketing efforts, in order to bring the business your way.  But in tough economic times like these, it’s of vital importance to squeeze every drop out of the money you spend, and too many investors make simple mistakes that end up costing them.

The first major mistake commonly seen in advertising of all types, is that the marketer attempts to reach too many people.  It’s called a catch-all, when you put out a very general message (e.g., “We buy homes!”), and attempt to attract a wide market of deals.  It’s a nice concept, but for whatever reason people do not respond to advertising that is not specifically targeted to them.  Whatever media you choose to spread your message, be sure to make it as specific as you can.  This will serve two purposes: 1) you will only get the kind of deals that meet the needs of your business model, and 2) the interested sellers/buyers/renters to whom the criteria in your advertisement do appeal will feel more acutely that you are the person they want to do business with.

Although you want to be specific and detailed, bear in mind that chances are your advertisement will probably only have a few seconds of your audience’s attention, so it’s important not to overwhelm them with too much detail.  Grab their attention, explain what you are looking for or offering, describe what you can do for your customers, and let them do the rest.  It’s the same logic that dictates the sales adage to “stop selling when you make the sale”.  Once you reach the right audience, step away and let them come to you.

In order for that to work, obviously, you need to tell your customers how to get in touch with you.  Provide an email address and phone number with appropriate hours to call.  I say obviously, but I see a shocking number of flyers, signs, etc. that provide a name and a service, and I am left with no idea what to do.  Am I supposed to remember this person, and go home and look them up in Google, and see if I can find a number on a social media page?  No, I will just look across the street at that other real estate advertisement with a big phone number at the bottom of it.  Don’t forget.

You really can’t go wrong with any of the marketing types—whatever puts your name in people’s minds is a success.  Obviously the internet is a must, and TV (though expensive) has proven successful.  But there’s nothing wrong with fliers and signs, provided you grab your target market’s attention with a good header, you provide specific details that narrow your audience to those who fit your business profile’s needs, and you provide a way to get in touch with you.  That’s it.  Be prepared to spend quite a bit of resources (money, time, and energy) on your marketing campaign, but remember that 100% of your business will come from marketing, so every single deal you do should make your marketing efforts worthwhile.

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You’ve got to play to win, you have to spend money to make money, nothing is free.  There is no shortage of adages that all serve to illustrate the same point: getting what you want requires work, in one form or another.  In real estate, getting business means following up on your leads—all of them.  Think of it this way: when was the last time you made a deal that didn’t result from a lead?  Well, the nature of leads and deals says this is impossible.  Every deal you do derives from following up with a new lead somewhere along the line.  So if we know this to be true, why then do salespeople in general fail to follow up on between 75-90% of all of their leads (according to the Sales Lead Management Association)?

The short answer is, because it’s hard to keep up with all of those leads.  It takes time, energy, foresight, organization, and personability, but I assure you it’s worthwhile.  If you follow 25 leads and do 1 deal, imagine what you could do by following 250 leads.

The essential ingredient to the recipe of following leads is a database.  This means you need to have a digital record of everyone you or your business has come into contact with, and all the pertinent details which will help you organize, store, find, and recall the lead as your business needs require.  This doesn’t need to be anything more complex than an Excel spreadsheet (although there is complex software you can buy which is designed specifically for real estate lead management).  In your database, you will need to include the contact information of the lead, the details of their property or interests, your contact history with the lead, and some sort of parameter indicating the lead’s priority in your business model (or perhaps how well you believe the lead fits your business needs).

Organizing your lead information will allow you to design a system for maintaining those leads.  Organize by date, organize by property, whatever system you choose to employ, sit down with your list of leads and start going through every single one.  When you do so, include whatever new contact history you generate with them, so that you know definitively whom you have called, whom you need to call, and how long it has been since you got an update.  Keep in touch, don’t burn bridges, and nurture those relationships with people who at one point or another, for whatever reason, triggered your radar as someone you could do business with.

With real estate, you don’t want to pester someone on a daily basis about when they’re going to be ready to sell their house.  This is invasive, rude, and will lose you business.  That means, if you check your contact log and see that you called a lead 3 days ago and they said they weren’t yet ready to move, don’t call them today.  Make sure that your categories and criteria remain up-to-date, that way, you will come across that lead in a month, and it will be time to make another call.

The key, without question, is in the storage and organization of data.  Once you have your database and information categorized and prioritized, you will be amazed at the influx of business generated simply by systematically calling every single person on your list, effectively following every lead that comes your way.

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For most of us, purchasing a home is as big a transaction as it gets, and the universal truth is that you don’t want to screw it up.  The primary advantage of hiring a realtor to help with your purchase, is that you will acquire a guide to help you navigate these relatively unknown—and highly dangerous—waters.  Even if you are a successful investor and this is your 100^th home purchased, there is still something to be said for having a local expert on your side.  Nobody, at any level of the investment game, wants to lose money on the purchase of a home.

The first great gift a realtor will offer you is the ability to find what you are looking for.  After a brief initial discussion, your realtor will be able to access the Multiple Listing Service (MLS), which is an aggregate list of all current listings on the market, in order to selectively filter all available properties according to your needs and specifications.  This is bound to save you countless hours of driving through neighborhoods and surfing the web.

The realtor’s job is not simply to find the home, however.  He will also direct you to reliable lenders who can help you get into your new home quickly and relatively inexpensively.  Acquiring loans can be extremely confusing, and if not executed properly can lead to crippling financial situations and ruined credit.  If you are at all unsure about the loan or mortgage process, you will need to have some help.

In addition to the ability to find a home, the realtor will be valuable in providing numbers (many numbers).  In addition to appraising the homes you are interested in purchasing, so that you have an understanding of the true market value of what you are purchasing, the realtor should also be able to tell you both the current sale prices as well as what the current owners paid, as well as local market trends pertaining to sale time, period of ownership, appreciation, asking vs. selling price, etc.  These are statistics and figures which you could possibly compile on your own, from various sources; but you would be much better served simply walking into the office of someone who’s job it is to know these things.

Finally, the realtor acts as a sort of barrier, or buffer, between the seller and you—the purchaser.  Although you don’t want to be alienated from another party in the same transaction, it can help to operate through an official figure such as a realtor, to avoid some of the more heated scenarios and discussions that come from a transaction inherent with so much emotion and so much passion.  Buying or selling a home can be a very big deal, both psychologically and financially.  Purchasing through an official can help dissipate the emotionality of it all, and will be a highly effective tool in negotiating and closing—certainly more effective than a purchaser alone.

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