As a leader of a growing real estate investment club I’m often asked, how do you find good deals? I had a new protg who once who demanded, “Why should I go out and look at the property? You’re supposed to find me a good deal.” She failed to understand that if I found a “good deal” - I would buy it!

First, let’s define what constitutes a “good deal”. This may seem obvious, but if you can’t clearly define what it means to you, how do you know when you’ve found one? There are several factors to consider in defining what a good deal means to you.

What is your exit strategy?

One factor, and perhaps the first to consider is your exit strategy. What are you going to do with a specific property? Is the strategy to hold, flip, lease option, wholesale, or??

Before I close a transaction, I know what I’m going to do with the property. Sometimes my strategy changes, but for the most part it pretty much remains the same. If I find a duplex in my home town that I can pick up for 60% of value I will clean it up, hold it long term (more than 12 months) and then sell it.

If the duplex happens to be in Klamath Falls, Oregon, about a 3 hour drive south from where I live, I will likely sell it with great owner terms for a small profit and move it quickly. I will take this approach because I don’t want to manage property that far away from home.

What are your goals?

Each of us has goals unique to us. I teach my protgs to write a life purpose statement and build goals around that. Once you understand your purpose you are in a much better position to define your goals and develop a plan to achieve those goals.

If your goal is to create passive positive cash flow of $10,000 per month so you can live on $5,000 and give away $5,000 to philanthropic projects then you need manage your activity and focus on your objectives in a way that will enhance your ability to achieve the over all goal.

Let’s suppose then, that an opportunity comes along that would take you in a different direction. Although it’s a great opportunity, it might not be in your best interest if it is not aligned with your life purpose.

What are your skills?

If you don’t know the difference between a power drill and a chain saw, you better stay away from houses and apartment units that need to be repaired before you rent them. Unless you are looking at a property with an eye toward learning something new, stay clear of properties that require skills you are unable or unwilling to provide. The investment opportunity may not be as good at it appears.

What is your financial strength?

This one is a biggie. I’ve seen new real estate investors get deep into debt and unable to complete transactions because they tried to purchase a “good deal”, only to lose it and other property as well.

For example, unless you have deep pockets, you may want to stay away from vacant land. Investing in vacant land and building lots is a rich person’s market - unless you are building houses as a strategy. There is generally no cash flow in to help off set the cash flow out. The “good deal” suddenly goes sour when you run out of money and lose all you have invested in this “good deal”.

If you have limited resources try to keep your investment purchases to single family homes at the lower end of the real estate investment spectrum- or a step above. There are many more retail buyers and tenants at this level which means you have a greater chance of selling the house or filling a vacancy and thus realize a positive stream of income.

I know several people who got in trouble when they found a “great deal.” They borrowed to the hilt and made payments on empty houses. This is a strategy for financial disaster. It matters little that you picked up a $900,000 house for $700,000 if you cannot find a buyer or make the payments for an extended period of time. This may be a “good deal” for someone, but is it a “good deal” for you?

As you can see, the term “good deal” is relative. There are lots of “good deals” out there, just be sure it is a good deal for you.

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2007 by Don Loyd

Don Loyd, President
Oregon Association of Professional Real Estate Investors

Don Loyd has been active in Central Oregon Real Estate for more than 37 years as a Real Estate Agent/Broker, Investor, Developer, General Contractor, and Corporate Marketing Vice President.

Don’s resume includes teaching under-graduate and through post-graduate course work. He serves as President of the Oregon Association of Professional Real Estate Investors and Executive Director of Northwest Real Estate Institute.

Don is also an investment mentor and group leader of Central Oregon Real Estate Investment Club. Meeting weekly, the group learns the nuts and bolts of sound, safe real estate investing and receives encouragement in their investment career.

He’s authored four books: My New Reality Journal,
Marketing and Selling Your Home - A Practical Guide for FSBOs,
Earn Amazing Money - Think Your Way to Riches, and Creating
Wealth for Women.

Don’s articles appear on several web sites and he is a contributing real estate investment writer for Cascade Business News.