In this article, we address the next key... the other eight will follow in subsequent articles.

4. Determining the Purchase Price Making Lowball Offers: As an investor, never pay the asking price unless an uninformed seller is asking below market, a real rarity. The seller almost always asks more than they are willing to accept for their properties. They expect to come down some, hence the above market asking price. Remember, the less you pay for the property, the greater your profit when you sell.

The real trick is to know how much less than the asking price a seller will take. Sometimes a seller will only come down a few thousand dollars. Other times they may drop 10 percent or more, and of course there is that occasional seller who will refuse to come down a dime. How do you know one from the other? That is why I mentioned earlier that you should do your homework and know as much as you can about the sellers motivation and options.

In addition, the offer and counter offer that the sellers make tell you more if you have done your homework. For example: if the seller counters your offer at a discount of 5 percent of the asking price or more, that means he is motivated. In most cases you will be able to get the lowest possible price.

Look beyond the price. It has been said that price is the most overrated element in negotiations. I think the point is well taken. Too many investors will sit down at the negotiation table and think only in terms of price. This really limits them with regard to working out creative ways to hammer out a great deal.

I have found that a propertys sale price is very often less important to the buyer than the terms, whether he or she is aware of it or not. Interest rates, amortization schedules, balloon payments, and similar factors often make a bigger bottom line difference than the price alone.

Verify All Details of the Property Never rely on the information the sellers give you. Verify everything, even if you know and trust the sellers. In many instances, the seller claims the rents are higher and the expenses are lower, a few of them unintentionally.

Examine the sellers income tax returns, schedule E and look carefully at the declared income. Determine what constitutes a good investment for you and how much you are willing to offer. Most buyers go by the asking price. For example, the asking price for a property is $2 million and the seller accepts $1.8. Some investors think they have a good buy. But the property might only be worth $1.4 million. You will only know that by doing your homework.

Know the Market and the Area You Want to Invest In Select an area and the type and class of property that you really want to invest in and you are comfortable with.

Find out how many properties there are for sale. What is the average length on the market before they are sold? What was the asking price? What are the sales comps: what was sold at the asking price, more than the asking price, or less than the asking price? How much more or less were they sold for? What is the occupancy? What is the trend, higher or lower occupancy? What about rent, is it increasing or decreasing; why? Are there any concessions offered? What are those concessions? Are there any special taxes or assessments that might affect the return? Is it a value added property, or cash flow? Is it a class A, B or C building? Is it an A, B or C area? What type of tenants are living there now and what types of tenants will you be able to attract?

His Formula Once I know I have done my homework and I know the market as well as the sellers motivation, here is what I do: I begin with the end in mind. Always think in advance about your exit strategy. In addition to the physical inspection and the financial analysis for the property, I buy differently than most people. I use the asking price as a pure guide. For example I look at the property location, neighborhood, quality construction, floor plans and amenities. Then, I look at how much improvement it needs and estimate the cost of the improvements and the time to completion. When do I expect to sell it? What will the selling price be? How much money will it generate during the holding period? How much is it going to cost me during the holding period? How much profit do I want to make? I add that plus 20 percent of my profit in case I make a mistake. Then I discount this to figure out how much I should buy it for. That will give me a number that I should pay and I always leave room for negotiation.

For example, if the price I am willing to pay is $1,400,000 I make my first offer at $1,290,000 or $1,335,000. It all depends on the information I gathered about the seller and the property and yes, sometimes I offer 30 percent less and rarely do I offer full price. It all depends on the asking price, vis-à-vis the value.