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If you are investing in
real estate you will face a variety of challenges. First you have to find
the right property. Finding the right property is a combination of personal
preferences and opportunities involved in a real estate deal. My most
important real estate investment principle is; “You make money with real
estate when you buy the property”. This means that I wouldn’t touch a rehab
property where the purchase price is not below 65%-70% of the market value.
Why do you need such a
low price to make it work? This is quite simple. A common guideline among
investors is that you must make at least $10,000 to make it worthwhile.
Remember you’re an investor and not a handyman. Rehab projects last
typically 4-6 months, sometimes even longer. You don’t want to end up making
minimum wage as a handyman after the project is done. Quite frankly this is
not uncommon for first time investors.
Real estate investment is
all about numbers. If the numbers are right you must make every mistake in
the book to turn your project into a financial disaster. That’s why you must
buy the property as cheap as possible. Selling the property is your least
problem. First you have to put together a budget. Here’s a little example.
Property A is located in
a decent neighborhood with average home resale values of $150,000. That’s
what our property will appraise after the repairs are done. We also take out
a hard money loan with 4 points and 12% (interest only) for 100% of the
purchase price. We calculate that the property will sell for $150,000 in 6
months. There are about $10,000 in repairs you have to take care of.
Property A
Purchase Price
$100,000
Purchase Closing
Cost $8,000 (fess + 4
points)
Holding Cost
$6,000 (6 months interest)
Repair Cost
$10,000
Insurance, Utilities
$2,000
Selling Closing Cost
$13,000 (6% realtor fee of
$150,000 + closing cost)
Total
$139,000
Selling Price
$150,000
Expenses
-$139,000
Total Profit
$11,000
This is just a very
simple example, but I hope you get the picture. Keeping track of the numbers
is essential in real estate investment. In the example above just imagine
what happens if you spend more money for the repairs or you have to sell the
property for less money. Even worst if you can’t sell the property within 6
months and after 9 months you sell it for less money. Not only did you loose
on the selling price you had 3 months of interest piling up as well.
When you’re investing in
rehab properties you have to have an exit strategy. My exit strategy is, to
rent the house and refinance the hard money loan if I can’t sell the
property after 6 months for the price I’m asking for. This will cover my
monthly expenses and I have more time to sell the property when the market
is better. Actually converting a rehab property into a rental can be a very
profitable choice of real estate investment. Friends of mine are doing quite
well with this strategy.
Bottom-line; crunch the
numbers, make a budget, keep track of your expenses and have an exit
strategy. Having this in place you’re good to go.
About The Author:
Peter Dobler is a 20+ year veteran in the IT business. He is an
active Real Estate Investor and a successful Internet business owner.
http://www.fl-home-biz.com
(Florida Home Business Center)
http://www.online-business-idea.com (Online Business Idea Center)
http://www.sell1on1.com (Internet Marketing Tool Box)
http://www.suncoastrenttoown.com (Florida West Coast Real Estate)
http://www.mypluginhomebiz.com (Your Personal 24/7 Money Maker) Learn more about the power of
viral marketing; send a blank email to
mailto:pdobler@getresponse.com
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