This is called the “price per square foot” method you can use to quickly evaluate a deal:

Take the price of a house
Divide it by it’s square footage

The number you get will be a benchmark by which to evaluate that property by. For example, if most the houses in a certain square mile are worth about $150/sf, then if you find a deal that is $120/sf then you may want to look into it. Likewise, and deal that is $150/sf or over, you can pass on right away.

Some things to keep in mind:
Attics and basements are usually valued lower–so if a house is 2,500sf but half of that is unfinished basement, the price per square foot will be lower–maybe that’s why it’s $120/sf instead of $150/sf.

Upgrades and damage may not be taken into account.

The property location will play a big role in the price.

Verify the square footage–sometimes garages are included, sometimes they aren’t. Sometimes it’s just the “living” areas.

The amount of land the property sits on makes a difference.

Can you rent part of it out? Rental income adds value to a property.

Know your neighborhood
The important thing to get to know one area very well, and then branch out from there. Start with the neighborhood you live in. In a future email I’ll talk about having a “farm area” that you’ll get to know really well.

Getting started
Your local county records office (if they have it online that’s even better) and zillow.com are two places to start to get a feel for the price per square foot of a particular area. The numbers on these web sites are not always completely accurate, but they’re great for getting an overall average price per square foot on any given neighborhood.

Keep in mind that the price per square foot method is just a quick look at any property. Use it just as a way to reject obviously bad deals or as a green light to look into a deal more closely.

I talk about the kind of things you’ll want to have in place in your personal life in another article, but economically speaking…

Is it best to start in a down economy? An up economy? Somewhere in between?

When is the best time to start?
The trick is that when the opportunity strikes it’s usually too late to start learning how to take advantage of that particular opportunity. It’s usually gone by the time you’re fully ready to take advantage of it. If you were to get into real estate right now, who knows what condition the housing market will be in by the time you get really good at some form of real estate.

Does that mean you shouldn’t try? Is NOW not the time to get into real estate because today’s opportunities will be gone? Of course not!

Here’s what it means: if the housing market is down, start learning how to work in a down housing market. What if you start to get good at foreclosures and suddenly they dry up because the economy improves and everyone is buying? At that point you’re in a position to adapt very quickly to a rising housing market. A high appreciation market makes it hard to lose money on any kind of a real estate deal (because you wait a couple months and appreciation wipes out a lot of the mistakes you make). And then, by the time the market tanks again, you’ll be perfectly positioned to take advantage of that market because you’ve already experienced it once.

The key is this: you have to start sometime, and there is opportunity in every market. NOW is the best time to get into real estate, and that will be true a month from now and a year from now. The only difference is that some people will get started now and a year from now will be well on their way to success, while everyone else will wait for a year wondering if this is the best time to start.

Which person are you going to be?

What to do:
The first thing to do is align yourself with people who are in a better position to see opportunity and understand what’s coming. If you’d like figure out how to start your career in real estate, look at the information here.

Don’t Believe Them
I’ve heard this used in a number of settings, but most often at guru real estate seminars. The presenter at the front of the room will inform you that one of the defining characteristics of the wealthy is that they make decisions quickly. Thus, if you want to be wealthy, you’ve got to stop thinking about whether or not you can afford to go to the seminar or boot camp that they are selling and you must go to the back of the room RIGHT NOW to buy their seminar or boot camp. Because the wealthy jump on opportunities when they see them, right?

Let’s shed some light on this situation, shall we?

Not long ago an acquaintance of mine gave me a call and asked if I’d be interested in helping him fund a resort project. That’s not what I do particularly, but I could certainly look it over and give him a quick decision or pass it on to others in my network.

He then told me about a deal where I could invest in a gold mine in the Congo. That’s right–gold in the Congo. The rate of return was great if I were to put money in it, but what in the world do I know about mining gold in the Congo? Absolutely nothing!

A 20-year real estate veteran can look at a house and decide if they’re going to buy it within a few minutes. Place an opportunity to buy into a gold mine in the Congo in front of them and they won’t make a split decision on it. If they wanted to expand into gold mine investing, they’ll study it out over days, weeks, or months before they start making decisions involving money.

Moral of the Story
The wealthy only make quick decisions in areas they are experts on. If anyone is trying to pressure you into making a quick decision and you don’t have the experience to know if it’s good or not, the decision should likely be “no”.

I can’t think of a single time I’ve regretted turning down someone who pressured me into making a purchase (especially a large purchase). If I’m at a real estate seminar and they cut their seminar price by 80% and start laying on the “once-in-a-lifetime” pitch, I’ll go home and think about it. Most of the time I wake up the next morning glad I didn’t jump at that opportunity. If I still want what they have a week later, I can always fly to the next city they’re presenting in and get the special price at that time. You will always have another chance at a good thing.

Your First Deal
This includes your first real estate deal. Sometimes beginning investors are so gung-ho about getting their first deal under their belt that they dive at the first opportunity they find. That’s admirable, but there’s a higher than likely chance it won’t turn out well.

It’s okay to make decisions slowly. Yes, good deals will pass you by at first but guess what? As you get better at this you’ll find that the deal of the century comes along about once a week. It’s true, but it’s only after you’ve studied many deals that you will be able to tell the difference between a great deal and a mediocre one.

You want to make your first deal a great one. It’s worth the wait as your knowledge and experience catches up to your ambition.

Can you see yourself doing what we’re doing?

Because people are concerned about the economy, the stock market, job loss, and what it all means for the future of real estate and our country. Here’s what it all means–and I’m not going to go into some long-winded economic forecast for you here, because I can sum up everything that is happening in one word:

“Opportunity”

Every time things go terribly wrong, there is a segment of the population that moves in to provide solutions to these new problems. For these people, Problems = Opportunity

And changing that word in their vocabulary made all the difference…

When foreclosures go up, these people learn how to help people get out of foreclosure and profit from it.

When cheap houses flood the market, these people learn ways to purchase properties in bulk.

When the stock market takes a dive, these people learn how to offer better returns to investors fleeing Wall Street (and that’s one way they were able to buy bulk properties).

When gas gets expensive, these people learn how to communicate and work with people online and by phone.

Every problem is an opportunity. The question for you is “Are you someone who will take advantage of opportunities and make things happen for you, or are you going to wait it out and see what happens to you?”

Some people will stick their heads in the sand till opportunities (these people call them “problems”) pass. But some people–relatively few–will go out and purposely learn skills and develop abilities to solve those problems and make a lot of money in the process.

You’ve hit a difficult spot. You’re spinning your wheels and not going anywhere. You’re questioning whether you should give up this silly dream of being a full-time investor and stay with your day job.

You can only take so much abuse. How do you know when you should quit?

When times are tough
There are a couple of very difficult moments in real estate that keep a lot of people from ever being successful. Learning how to properly invest is one. Growing a supportive network is another. Becoming a professional at a particular strategy is another.

These difficult times are not bad things. They are, in fact, great things! You want to look forward to the hard times, because when you encounter them you know that opportunity awaits on the other side. If you’re doing something and you don’t encounter difficulty, then when you’re doing is probably not worth doing.

These difficulties are the thing that keep average people out of a particular industry. Because if anyone can do something and it’s easy then it becomes commonplace. Things that are commonplace are very low in value. Difficulty creates “scarcity”. Great real estate investors are relatively scarce, which is why we get paid so much.

Know when to quit
There is a time to push through and a time to quit. How do you know what you should do?

Here’s the key. Ask yourself a simple question:

“Am I progressing?”

This was the one question that kept me going while I was experiencing the hard times in this industry. Every week I could look back and see that I learned something new. I could see that I was improving and doing better. I could see progress towards where I wanted to be.

If you’re progressing, then you’ll get out of the tough spot and on to the rewards that follow. If you’re not progressing, then there’s no point to struggling.

Without progression, you’re not actually experiencing difficulty. You’re at a dead end. You could struggle forever and there’s no point to it.

Interestingly enough, this is where most people are with their jobs. They might get a raise now and then or there could be a promotion in their future, but there’s no growth. Just the same thing day in and day out.

Look for the next challenge
That’s one reason that seeking out challenges are so important. The difficult times give you a chance to progress. They give you a chance to learn new things and overcome and grow.

Love the difficulties that real estate brings. Get in the habit of seeking challenges and pushing through them. That is the secret to an exceptional life.

It’s a hard question to answer for the same reason you wouldn’t walk into an electronics store and ask them how much their stuff costs. The person behind the counter will probably look at you blankly for a moment and then say “That depends. What are you looking for?”

And that’s what I end up asking people in return: “How much does my stuff cost? That depends. What exactly are you looking for?”

People don’t seem to appreciate that response. At least when I ask it nobody’s ever written me back. Maybe they think I’m dodging the question or being cheeky. The fact is, it’s a hard question to answer unless I know more about the person who is asking.

Here’s what stuff costs
Are you looking for general information on being successful? I’d start with these books. They don’t cost much.

Are you looking for random tips and advice on real estate and success? That’s free on my email list.

Are you looking for someone to teach you how to properly invest? There are some things that I can teach you and there are many things that you wouldn’t want to learn from me because I’m not an expert at it. It depends on what strategies you want to pursue.

I’m not a real estate “guru”, in case you’re wondering. I don’t travel the country giving seminars and selling boot camps. If you need knowledge in order to have the success you want, I can show you the best ways to get it.

So what the heck do you do then, Jarom?
Quite simply, I am a mentor. One of many that you will likely have as you work towards where you’d really like to be. I specifically work well with beginners and can take someone who is new at real estate and guide them through the beginning stages. There are many mistakes and traps most new investors fall into. I show new investors how to avoid those common mistakes in order to start a successful real estate career the right way, the first time.

I’ve seen things from both ends–the frustration and confusion of getting started and the peace and confidence of being so good at what you do that you can write your own check. I’ve talked with hundreds of aspiring investors and hundreds of professional investors and I have a very clear understanding of the road to success. I’ve been there myself.

So you charge money for mentoring?
No, mentoring is free. There are a lot of ways that I can work with the people I mentor that can make us both money. I’m just looking for people to do business with, which is one of the purposes of the Real Estate Investing For Beginners web site–finding those people.

Having said that, the first step to seeing how we might work together is for us to talk for a few minutes. I’ve reserved some time in my schedule for getting to know new investors. At the very least, after 10 minutes or so on the phone, I can give you some ideas on what you can do right now to take the next step in real estate. And it very well may be that we find a couple of ways we could work together.

To learn more, join the email list.

Rehabs aren’t for everyone, but some of the things I’m doing to make money on this deal will be very helpful for you to understand.

Let me give you the basics of how a real estate deal works. This will start out very broad, and then I’ll give you some of the details of my rehab (if you’re not sure what a “rehab” is, please visit the real estate strategies page.

Finding the deal:
There are a lot of ways to find real estate deals. Some of the more common ones are auctions, foreclosure lists, the MLS, and picking up a notice of default list from your county. The best deals, though, are usually found before they go public. If you can find people who need to sell their house before they go into foreclosure or list it with an agent, you’ll have much less competition and get better deals.

That’s how I found my rehab. A home builder I happen to know gave his aging mother-in-law a smaller new-build he had just finished in exchange for her larger house in an established neighborhood. He wanted to sell the house, had some significant equity in the home, and passed about $30K on to me.

Doing some work:
Often (not always) you make money by improving a property somehow. Whether it’s a mess and you fix it up or you make needed improvements, you can increase the sales price or rental income by putting some money into the property first.

In my rehab the basement needs more head room to bring it up to code. It will take about $30K to lower the floor and finish the basement as a duplex. Based on the value of other duplexes in the area, the value of the house will increase around $40K~$50K as a result.

Exit Strategy:
An “exit strategy” is what you’re going to do to cash out of a deal–it’s how you plan on making your money. For example, you could wholesale a property to another investor, sell it retail to a home buyer, find a lease option tenant, or just keep the property and rent it out.

Your exit strategy will depend on what will make you the most money and when. For my deal I’ve got long-term financing in place and I plan on renting it out (it’ll cashflow around $450/mo) till the market peaks again and then sell it to a home buyer or an investor who wants rental property. By that time I should be able to make $60K+ on the deal.

That’s the basic anatomy of a deal: finding it, working with it, and cashing out of it. For every property you find you want to have this all planned out before you purchase the property. Too many beginners buy a property and THEN try to figure out how to make money at it.

If you’re an electrician, you probably spend time around other electricians and you likely make about the same income. If all your friends are broke and going nowhere, you’re likely on the same path.

Do something with me right now–think of the 5 people you spend the
most time with, whether they’re friends, family, or co-workers, and
take an average of their incomes. I can pretty much guarantee that your yearly income is
within $1,000~$10,000 of what they make.

Moral of the story: If you want your income to
go up, get rid of all your friends.

I’m kidding! What you want to do
is add new people to your list of friends–people who are doing what
you want to do, making the income you want to make, and going in the
direction you want to go.

This is especially important in real estate investing. The more time you spend around successful investors, the more they’ll rub off on you. Adopt their mindset, their habits, and their outlook on life, and your bank account will grow to match your new way of thinking.

Where do you find successful investors to network with? They’re all over the place at REIA’s, at conventions, at guru seminars… Find them, talk with them, get their business cards and keep in touch with them. Get to know how they think, get involved in the work they do, read the books they read, and you will attract more of them to you as you become more like them.

Purchase the 7 Lies Special Report and, once you’ve read and understand the best ways to approach real estate investing and how to work with successful investors, I’ll introduce you to investors in my network. I’ve got friends all over the country I’d be happy to get you in touch with. Some of them will be local to you and others will be long distance–there are plenty of benefits to knowing investors all over the country if you understand how to work with them. 

Because success in business and real estate is all about who you know…

Or it could be all about how good you are with photoshop…
(if some of these pictures don’t appear, you can see them and more on my Facebook profile here under the photo section. Let me know you’re on my investing email list and become my friend).

Me and Barack Obama

I never said I actually met him…

Me and John McCain

He likes to have me on stage, but he never lets me talk.

Me and President Bush

I could not for the life of me figure out who George and Laura were waving at.

Me and Donald Trump

A minute later "The Donald" and I were kicking the tar out of these two investors from New Jersey.

Me and Bill Gates

How many people do you know who have done "I’m a little tea pot"
on stage with Bill Gates? Not that many, I’ll bet.

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I hope these pictures made you smile. Enjoy life and then go out there and make things happen.

-Jarom Adair
www.RealEstateInvestingForBeginners.com

If that were it, then it wouldn’t be so bad. The main problem with this situation is that a bit lip tends to swell a little which makes it even easier to bite again.

And bite it again I did.

It’s the “downward spiral” effect of lip biting that really annoys me. The pain is self-perpetuating because the more you bite it the easier it is to bite again.

Downward spirals…

There are a lot of situations out there like this. Like allergies–you get a runny nose so you blow your nose which makes your nose tickle so you sneeze which makes your nose runs more so you blow it which makes you sneeze…

Or you’re depressed because you’re overweight, so you eat comfort food like ice cream to combat depression but then you gain more weight so you get more depressed…

The big problem with downward spirals is that they’re so hard to break out of. You usually have to give up the good things you have while you continue to live with the pain. In my case, I’ll have to give up eating for a bit while my lip heals. Eating is a good thing, but as long as I’m chewing on something chances are I’ll keep biting my lip over and over again and keep making things worse.

Financially speaking, that’s where a lot of people are right now. A lot of people are in a financial downward spiral, living paycheck to paycheck. They work long hours and only make enough to break even. Financially holding things together takes so much time that they have very little time or resources to do something to improve their circumstances. They then spend whatever spare time they have trying to relax and enjoy life a bit so that they can wake up the next morning and face another day of the same work again.

After a full day of boring/repetitive/back-breaking/mind-numbing (enter description of your work here) work, you just want to escape for a while through some of America’s favorite pastimes: TV, movies, magazines, internet surfing…

You won’t get anywhere as long as you keep doing what you’re doing.

The main problem with this situation is that, just like any downward spiral, you’re going to have to give up the things you enjoy right now to break out of it. If you want to get into real estate investing so you can make better money and get a little time freedom back, you can’t just quit your job (you’ve got to pay the bills somehow) so you’re going to have to give up the time you usually use to relax and use it to study real estate and then start putting that knowledge to work. You’re going to have to invest what little money you have (and probably borrow and go into debt as well) into your education and your first couple deals so you can get things up and running.

The whole point…

The reason I tell you this is because this is the point where most people give up. Most beginners drop out of real estate because they’re not making money very quickly, they’ve sacrificed a lot already, they’ve given up a lot of what they enjoy and the lack of money/lack of time/pain has only intensified for them.

As you’re getting started your family may not understand why you don’t spend as much time with them (mine didn’t). Your friends may give you a hard time for doing something they don’t have the ambition for. Your in laws may tell you to stop wasting your time and just get a second job so you actually make some money (that would be your broke brother-in-law).

I tell you this because you don’t often hear about the difficulties real estate investors face when they first started in real estate.

I know from experience that there are some people on this email list that have tuned me out already. They just want to sit back and fantasize that they’ll be rich some day without doing anything difficult to get there. They’re the kind of people who don’t take action on anything anyways. They’re much more content to receive emails like this and pretend that simply reading this has somehow gotten them closer to their goals for becoming wealthy.

For the benefit of the rest of you who are actually determined to take action and do something about your situation, I want to give you a realistic understanding of what you’re up against. Because the fact is that, though you may be dealing with a downward financial spiral right now, once you’ve broken out of it there are upward spirals to look forward to.

The rich keep getting richer…

You’ve heard the saying that the poor keep getting poorer and the rich keep getting richer, and it’s true. The poor are in downward financial spirals and the rich are in upward financial spirals.

If you’ve got money, then you have a much easier time making more money. You can qualify for loans, you can use your money to make more money, people are willing to work with you and do things for you, you can afford to spend money to learn new things that will add to your wealth and you have the resources to try new things and the luxury of losing money and not feeling so much of a sting.

You tend to get into other upward spirals as well. You begin to value yourself more so you start exercising on a regular basis, which gives you more energy and helps you excel at your business activities so you make more money. You start to eat better. My wife and I recently gave up eating sugar. Why? For me it’s because I have a life worth living and I want to extend that life and enjoy it as long as possible.

Probably the first thing that you come to appreciate when you’re not so stressed about finances is the peace of mind you receive. You can actually relax a bit. This morning my wife was walking around like something out of the “Living Dead” movies because our son kept her up most of the night. I didn’t have anything pressing going on so from 8:30am to noon I watched the kid and took over household duties while she slept for a few hours.

It took me a solid year of working long hours and not getting paid very much to get myself into this upward financial spiral, and my wife didn’t like it very much while it was happening, but she doesn’t complain so much now.

So if you’re trying to break out of a downward spiral and break into an upward spiral, I want you to know that there’s a light at the end of the tunnel. Don’t stop until you get there.

-Jarom Adair
www.RealEstateInvestingForBeginners.com

Having said that, I just spent $2,500 that I shouldn’t have, and it’s completely my own fault…

It was a sad sight…
One year ago they were huddled in my rental, desperately looking for a place to live. They were a nice looking couple with two daughters and a son and a baby on the way, and they didn’t have a place to stay. Due to unforeseen circumstances they were forced out of their house and had no place to go.

I felt the need to help them out. His kids seemed well-behaved and he looked like a responsible family man. So I rushed the application process to get them in quickly.

Therein lies my mistake, and the moral of the story.

The application process I (usually) follow includes:

–Talking to past landlords (I require the previous 3, he only gave me one, and I never was able to get a hold of that landlord–it could have been a wrong number)

–Doing a background check (I ran it quickly, but I only glanced at it because I had already allowed them to move in)

–A credit check (I usually have a minimum credit score I require, but he had no credit history)

What did I require from them, you ask? I got first and last month’s rent and a deposit. That’s all.

And they paid rent late more often than not, trashed the house over the course of a year, and left me with a $2,500 clean up bill.

Moral of the story: The rental application process is a system. Like all systems, it is there to help you weed out bad renters. If I had stuck to my system, I wouldn’t have rushed things and I wouldn’t have let them into my rental. I wouldn’t have let their emergency rush my due diligence process and I would not have had to ask them to leave when their contract was up.

So it was my own darn fault.

To wrap things up, I saw them in a parking lot a couple of days ago. Apparently they’re still living in the neighborhood. Their new landlord didn’t call me to ask what kind of tenants they were. I can only imagine that landlord was rushing their application because they looked like a nice family and, due to unforeseen circumstances, were suddenly homeless…

Quick tip: If you’re considering a new tenant, ask for their current landlord’s number AND the information on their past 2 landlords before that. If they are bad tenants but are still living in a rental, their current landlord might be trying to get rid of them and might not be completely honest with you about how bad they are. But any past landlord will be more than happy to give you the full details. That would have been a life saver for me.