This article gives you a foundational understanding of residential real estate investing analysis, and a formula for determining how much to offer when purchasing property for rehab and wholesale purposes.
Anyone can learn the simple skill of real estate investing analysis. The important point to understand is that the analysis will vary, depending on the type of real estate being discussed. This article focuses exclusively on residential single family and duplex properties purchased for rehab and wholesale purposes.
The first step in your real estate investing analysis is to determine the fair market value of the property after all repairs have been completed. This is done most accurately by having a Realtor run a comparable sales comparison report. Make sure the properties your Realtor chooses are truly comparable, not simply the same bedroom count, but also the same type of construction, in the same neighborhood, roughly the same age, etc..
The next step in performing your real estate investing analysis is to determine the cost of all needed repairs to bring the property into what I call ?retail condition?. In other words, how much will all the repairs cost to complete, including materials, labor, and holding costs?
Once you have determined these two values- After Repair Market Value and Repair Costs- the next step in the real estate investing analysis process is some simple subtraction. Subtract the Repair Costs from the After Repair Market Value to arrive at the property?s Current Market Value.
Once you are armed with the Current Market Value of a property, it?s a simple matter to complete the real estate investing analysis and arrive at your offer price. Your offer price will be the Current Market Value minus either $20,000 or 30%, whichever is lower.
To make this real estate investing analysis process all very clear, here’s an example: Suppose you are looking at a single family home in a mid-priced neighborhood. The Realtor pulls Comparables and you determine that the After Repair Value of the property is $150,000. You further estimate that the repairs needed will cost $30,000 to complete, including materials, labor, and holding costs.
Next, as part of your real estate investing analysis, you subtract the $30,000 Repair Costs from the $150,000 After Repair Value, and arrive at a Current Market Value of $120,000. You subtract $20,000 from $120,000 and get $100,000. You also subtract 30% from $120,000 and get $84,000. The lesser of $100,000 or $84,000 is $84,000, so that is your offer price- $84,000.
Using this formula for real estate investing analysis you may miss out on a few properties you could have bought otherwise, but you will never overpay for a property, and you will always make money.
Now, go make more offers!
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Tom Dunn is a successful real estate investor and author of the popular DealFiles Real Estate Investor Stories free newsletter. You are welcome to share this report, unedited and in it’s entirety, with anyone you like. You may not remove this text. ? 2007 by Tom Dunn. Website: http://www.dealfiles.com e-mail: tom@dealfiles.com
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Tags: Comparable Sales, Comparison Report, Current Market Value, Duplex Properties, Fair Market Value, Important Point, Neighborhood, Realtor, Rehab, Residential Real Estate, Simple Matter, Single Family, Subtraction, Wholesale
One of the problems faced by many newbies (new investors) in the real estate business is lack of confidence. Confidence cannot be built without doing the activity that you are trying to build confidence in. This presents a problem with most people because real estate is not something that you can just practice, you cannot practice buying a house, or practice selling it. You could pretend to buy houses I guess, or pretend to sell houses, but pretending is for kids. This is where real estate bird-dogging comes into play. It gives you a reason to practice, you get paid. Now if money won’t make you practice then nothing will.
Instead of not getting paid for all those hours spent learning the market, you could be making thousands. I cannot think of a better way to learn real estate than getting out and looking for good deals, then finding good deals and showing them to buyers, who pay you for your services. Then after the buyers close you can follow the progress of the home and see if you made a good decision or not. The best part is that during your practice, even if you made a not so great decision you still get paid, and you do not lose a penny.
I started out my investment career as a Realtor. I built my confidence through selling investment properties to other people and watching them make money. After selling 9 homes to other investors and seeing them profit tremendously, I knew it was time for me to start making myself some money.
Eric Medemar is a realtor and real estate investor with 30+properties. He specializes in wholesaling, assigning, and flipping real estate. In 2007 He has already made close to $100,000 flipping properties. His goal is to help at least 170 people skyrocket their investment careers in 2007. http://www.BirdDogBiz.com http://www.TheMillionairesBlog.com
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Tags: Buying A House, Dogging, Eric, Estate Business, Flipping Properties, Flipping Real Estate, Good Deals, Guess, Investing, Investment Career, Investment Properties, Investors, Lack Of Confidence, Money, People, Presents, Real Estate Investor, Real Play, Realtor, Reason
My twenty-two year old son asked me a question last night. He said, “Dad, if you were just starting out, like me, and you wanted to get going in real estate, what would you do?”
What a great question, and I really had to think about it before I answered him. What I told him isn’t original with me. These ideas have been expressed much better by other authors before now, but since the essence of creativity is selective borrowing, here’s the advice I gave him.
I said that the first thing I would do is become an expert in my target market.
“How long will that take?” he asked.
Ah, youth- always in such a hurry.
“Depends on how much time each week you can devote to it,” I answered, giving him another of the vague responses he has grown so used to.
Predictably, he groaned.
I went on to explain to him that, if he really committed himself to following my advice, and if he committed to a minimum of 15 hours each week, he should become both competent and confident in about 3 months, which doesn’t seem like such a long time. The key is looking at tons of houses, and asking tons of questions of the right people.
I told him, if I were just starting out, I would also find the right Realtor to work with. The right Realtor will be able to put you in touch with a boatload of opportunity you can’t find by yourself, and provide you a list of foreclosures and vacant properties to look at every day.”
“What would you do next?” he asked.
I said that I would work on building a buyer’s list at the same time I was learning my market.
“How would you do that?”
“I would find and join my local REIA (Real Estate Investors Association) group, and attend every meeting. If my area didn’t have a REIA group, I would start one. This is the place to start finding, meeting, and networking with the people in your area who invest in property. I would also read the newspaper classifieds for “Buy Houses” or “Buy Property” ads. These people are active buyers, and should be added to your buyer’s list. Your goal is to have as long a buyer’s list as possible, at least 50-100 names depending on the size of your area.”
“Why?” he asked me
“I’ll explain that in a minute.” I said
He rolled his eyes. Talking with your son is like chatting with a nuclear physicist- every time you try to impress them with your knowledge, they make you feel like they can’t believe how long it took you to come to your childish conclusions.
I pressed on, determined to give my son the advice he was seeking.
“Next,” I said, “Armed with an in-depth knowledge of my market area, and my active buyer’s list, I would start making low offers on every foreclosure and vacant property I looked at.”
“Every one?” I could see the doubt in his eyes.
“Well, close to every one. Every house that your confidence level allows you to make an offer on.” I could see the next question coming.
“What do you mean by that?” he asked. So predictable.
“What I mean,” I continued, “is that the market knowledge you gather during your market research will give you a certain level of confidence. The more knowledge you have, the more your confidence will increase. When you first start making offers there will be a lot of properties that will appear to be beyond your skill level, and if they seem to be, they probably are. You simply won’t have enough confidence to make offers on those properties.
“As time goes on, though, and your knowledge grows, so will your confidence. Then those properties that intimidated you at first will become less frightening. Instead of seeing hazards, you will see opportunity. Don’t stress about this, because it’s a natural progression. As long as you’re putting in the time learning your trade the knowledge will come, and so will the confidence. One follows the other like the summer follows the spring.”
Next, my son asked, “But how do you determine how much to offer?”
I went on to explain to him my method for determining the right amount to offer. See my article titled "Real Estate Investing- Is There One Magic Rule?"
“I get it,” my son said, head bobbing up and down knowingly. “What comes next?”
“OK,” I said. “What happens next is, most of your offers are rejected completely, a few might be countered, and one out of every twenty to fifty will be accepted.”
“Is that all?” he asked, perplexed.
“That’s all, but that’s alright,” I said. You can’t handle a whole bunch at once right at the beginning anyway. One or two is enough to get you started. What you do next is very important.”
“What’s that?” my son asked.
“Start marketing your fool head off.” I replied. “You know that list of buyer’s you’ve been developing? You call every one of them and tell them about the great deal you’ve got, and see who’s interested. Put ads in the paper, signs on the property, and signs anywhere in the neighborhood you can get away with. Create a flyer to pass around at your REIA meeting. Sell, sell, sell is the name of the game. Whatever it takes, find a buyer for that property BEFORE you close and take possession of it.”
“What about the title work and all the legal stuff you have to do when you buy a house?” he asked. He’s smarter than I give him credit for.
“That’s just mechanics, and I can teach you mechanics as you’re going through each deal. What we’re talking about here is strategy. If you get this strategy down, you can learn the mechanics.
“OK,” he said, “how do I make money?” A very astute question.
“Simple- the same way you make money on any product you sell. You sell it for more than you paid for it. For instance, let’s say you get a house under contract for $40,000 that you determined beforehand has an After Repaired Value (ARV) of $97,000 and needs repairs of about $12,000. If it were me, I would try to find a buyer in the $48,000 to $53,000 range. That way, your buyer would still have room to make his repairs and make a tidy profit, and you would walk away with somewhere around $5,000 to $8,000 after taxes and fees.”
“Fees and taxes?” my son asked. A rude awakening.
“Yes, paid to your attorney, the Realtor, the title company and the government. Of course you could do a simultaneous closing, and there are other ways to eliminate some or all of those fees, like making your offers in the name of an LLC and then selling the LLC instead of the property, but again we’re talking about mechanics, and that’s the subject for another discussion.” (And another article)
“How much would it be reasonable to earn doing this full-time?” he asked. A light going on.
“There’s no reason a full time wholesaler (wholesaling is really what we’re talking about here) couldn’t make $5,000 to $10,000 per month, or more. Not at first, of course, but after a few months or a year of consistent effort, the sky’s the limit.”
“Wow,” my son said, “I never though about it like that before. I never understood so clearly what wholesaling is all about. I think I could do that.”
I think he could, too. For that matter, so can you. In fact, what’s stopping you?
Now, go make more offers!
Tom Dunn is a successful real estate investor and author of the popular DealFiles Real Estate Investor Stories free newsletter. You are welcome to share this report, unedited and in it’s entirety, with anyone you like. You may not remove this text.? 2006 by Tom Dunn. Website: http://www.dealfiles.com e-mail: tom@dealfiles.com
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Tags: Advice, Association Group, Boatload, Creativity, Dad, Foreclosures, Hurry, Investing, Investors Group, Long Time, Networking, Opportunity, Real Estate Investors, Real Estate Investors Association, Realtor, Target Market, Vacant Properties
It?s very normal to get first deal jitters in real estate investing.
There are several real issues:
1. Real estate is a big investment, the dollars are large, so there is
great risk but also great rewards. Its much different signing a contract for $100,000 or more that you are going to manage yourself than to send $1000 to the bank and have it put in a cd. Of course when you put your money in the bank it goes down in value as inflation is much higher than the return the bank will pay you. While your real estate investment will grow with inflation but since you have only a small part of your own money invested it will grow at 10-20 times the rate of inflation.
2. When you are new it is hard to know the value of a neighborhood and what is a realistic exit strategy. Find out how other investors are selling their homes. Are they retailing them? Are they doing rent to own, otherwise known as lease option or lease purchase? Holding long term as rentals and cashing out their equity? There are a number of strategies investors can use and some are better than others for certain neighborhoods.
3. Real estate investing is work, you have to go get involved in a multi step project for every property, and that can be intimidating. You just have to learn to write down everything that needs to get done and accomplish small tasks every day and before you know it you will be a real estate investing pro.
Only experience will teach you when its an obvious deal. Look on
www.realtor.com and see what realtors think houses in that area are worth. Drive around a few blocks and call any for sale signs and then go lookup the tax assessor info on those addresses and see how they compare.
To your success:
David Neese
About the Author: David Neese is a real estate investor, small business owner, ecommerce marketer, writer, motivator, father and athlete. David offers a free Ecourse on quick start strategies for getting started in real estate investing that is delivered via email and teleseminar at: http://www.freerealestateinvestingcourses.com
Tags: Athlete, Free Ecourse, Getting Started In Real Estate, Investor Business, Jitters, Lease Option, Lease Purchase, Marketer, Money In The Bank, Neese, Neighborhood, Rate Of Inflation, Real Estate Investing, Real Estate Investment, Real Estate Investor, Realistic Exit Strategy, Realtor, Realtors, Rewards, Small Business Owner
Our company buys houses across the United States and we are constantly asked, “How do you do this successfully and live so far away from the properties you buy? How are you handling the rehab living so far away?” and “How are you so successful at this and not even living in the same states you’re investing in?” Here is my answer: I have an awesome power team of people that I trust in each and every market we go into. This team includes lenders, contractors, handymen, property managers, appraisers, attorneys, real estate agents and brokers, sign companies, insurance agents, tenants and buyers! It can sometime take a while to put this team together and yes you are probably going to go through a few not so great ones to get to the ones you like, know and trust. As your portfolio begins to grow, you will need more people on “your team”. The very BEST place to find these people is by a referral. That referral can come from another investor, a local real estate investment group member, a member of a local landlord association, a realtor, a friend or anyone else that you trust. Just be sure that they are “In the Business” and understand what it is that we do as investors. Always remember, the due diligence end of things is always your responsibility. Just because an investor recommends you use a certain agent, appraiser, lender or contractor does not mean they are the best person for the job. You should always get references from anyone you are even thinking of using.
Property Managers - Like your real estate agent and attorney, you need to find someone you can get along with. Interview them, as if you were going to rent a property to them. You want to make sure your property managers will handle your house like a landlord not a slumlord.
Insurance Agents- Shop Around to find an agent who can do non owner occupied (NOO) properties and give you a fair rate! I always look for a broker who can give me a competitive rate and is fair and most importantly, honest. I like to find insurance agents through referrals-that usually seems to be the best!
Lenders - This can be a tedious process. However, once you find just a couple of lenders in a specific area and they understand Investment property and NOO (Non-owner occupied) loans, you’re set! First and foremost, you will need to find someone that can loan in the area you are looking at investing in. There are private money and hard money lenders that are available in every state there is and sometimes using private money or hard money loans can be the easiest way to buy and rehab a house without using your own cash, especially if you don’t have good credit or much cash to put into the deal. Most private and hard money lenders charge anywhere from 4-8 points to originate the loan and 10-18% interest. This is not cheap, but it’s not really a horrible price to pay for the convenience of having money in 1-2 days. Sometimes, its not the cost of the money but the availability of the money that is most important. As long ad the yield is higher than the cost….that’s all that matters. In other words, if you are going to make more than what you spent to get into the deal, it should be a no-brainer! Here is the difference between lenders: Private and Hard Money Lenders are quick and can provide you with the cash you need quickly, but you are going to pay more. They provide a service that mortgage lenders and banks cannot typically do. They give you the money to purchase the house as well as provide the money to complete the rehab on the house. However, you must remember that you can’t keep a hard money loan on your property for any long period of time and expect to make any money-the money is expensive and will eat up your profits quickly. When taking out a private or hard money loan, you should not plan on keeping it more than 90-120 days at the most. If the project cannot be completed in that timeframe, don’t use hard money! To get a copy of our Hard Money Lender Rolodex, go to reitrainingcenter.com or reiconferences.com and enter your name and email on the popup that comes up.
Conventional Lenders are much less expensive but usually require better credit-at least decent credit. There is definitely more documentation and it takes a lot longer to complete a deal-typically 30-45 days to close. It’s nice to find a funding source that can provide both; however that’s usually not your typical scenario.
Whatever type of lender you decide to use, be sure to always line them up before you go searching for properties. It’s always best to have the money in place BEFORE you need it. Then, when you go to make offers, there I no delay. The last thing you want to do is get a property under contract only to find out you can’t get the money to purchase it. The investment market is a very small one and you definitely don’t want to develop a reputation for not being able to close deals!
Sign Companies - You can pick any sign company out of a phone book or wherever. I have previously used sign companies to put out and pick up signs in addition to showing my vacant properties to prospective tenants.
If you are going to manage your own properties, while living in another state, you will need a person to show the property to potential tenants. Realtors, Handymen and sometimes even appraisers can be great people to use for this, but sign companies are going to put out your signs in front of the house anyway. For a nominal fee, they may be willing to let someone in and show them the property. Don’t try to use a large national company for this. Call a local one-man type of shop. You can sometimes find them through referrals from other real estate investors or realtors.
Real Estate Agents & Brokers - This is not the easiest person to recruit for your team! You should never put all your eggs in one basket (ie…one realtor) However, you definitely want to develop strong relationships where agents know you, know you are a serious investor and that you are serious about purchasing multiple deals in one given area. You need to be on a mission to find a buyers agent who is willing to put in some legwork and then be compensated accordingly. If the agent knows you are looking to buy properties in this same area over and over again, they will almost always do whatever they can to accommodate you (take picture, email you comps in a timely fashion, for research, run the financials, etc) There are a lot of gents out there doing the real estate thing part time-those are not the ones you want. You also want to din agents whoa re investors themselves or who work with investors frequently and understand how to “play the game.”
After, you have a property in mind and you are calling an agent for the first time, you need to know a couple of things about the property. What work does the property need? What will it be worth once the work is done-that is the ARV (After repaired value)? What will this property rent for-what are rents in the area for properties similar to this one (Have them send you a rental analysis or something on paper-don’t just take their word. Alternatively, you can look in a local newspaper for the area and calla few local property management companies to verify local rents) What is the average time on the market if I were to resell the property? What do the ? mile and ? mile comps look like? If the agent can’t give you this information on a property , they are not the right agent. Also, you will want to make sure you find an agent who will go to the properties you are looking at buying and take several digital pictures and send them along to you. If they are not willing, find another agent! These agents need to understand that the chances are that you are going to buy this property without seeing it. They are acting as your eyes and ears on this purchase and its important that they look at this as if they were going to buy the property themselves and pay close attention to detail. After you purchase a home or two from one agent, they are going to be more willing to work with you and do what you need them to do. They want to see that you are serious and then they will usually perk up, pay attention and do whatever it is that you need them to do. This is the type of relationship you are seeking.
Attorneys - You need to employ the services of any attorney when wholesaling houses to other investors. We won’t get into the legalities and tax issues of “double closings”. This is where you use your buyer’s funds to pay the seller. You don’t spend any money out of your pocket. Your buyer writes a check to the attorney, the attorney pays the seller and writes you a check for the difference. Some attorneys will do this, some will not. If you don’t have the cash to fund the purchase, it’s nice to identify an attorney who will allow this. It can be as simple as asking. “Will they do a double close? And can you use buyers funds for your deal?” I recommend the honest approach, tell the attorney what it is that you want to accomplish and if he can make it work, great!
Before you decide who you are going to use, speak with a few different attorneys via telephone. Make sure are clear about your investment goals and what you are trying to achieve. Also make sure they are experienced attorneys who are used to working with investors because if the attorney understands you as an investor and what you are trying to accomplish, he or she can better protect you in the long run!
Tenants - If you are planning to buy, fix and rent out your properties, then you need to have tenants for your properties. Two great places to look if you want to rent your properties out through Section 8 is www.socialserve.com and www.gosection8.com. They will allow you to list your property in their databases for free and then those properties are marketed to tenants with section 8 vouchers who are looking for housing. This program is great and has saved me thousands of dollars in advertising costs to get tenants! If you decide not to rent your properties through section 8, you can run ads in the local newspaper. Also, be sure and put a sign in the yard letting everyone who drives or walks by the property that it is for rent. You will be surprised how quickly the word will travel!
Buyers - If you are going to wholesale a house here and there to another investor, you need to have a list of people that you can sell to and who buy houses wholesale to rehab and rent or sell. Its best to develop this list of people BEFORE you go out and put properties under contract.
As a company,, we have thousand of people on out list that say that they “Buy Properties.” However, our core list of really serious buyers who have lines of credit lined up and can pay cash for a property on a days notice is less than 100 people long. In your area, you need to know who that core group. You can always find buyers at your local landlord association or investment group meetings. You can also find buyers via referral through other investors or even agents. WE find a lot of our buyers online in local news and chat groups like yahoo as well. Ask local appraisers and title companies who the “Serious Investors” in the area are. They are usually more than willing to share this information with you. As you develop a reputation in a given market, the buyers will come to you for the deals. This is the best case scenario!
Appraisers, Handymen and Contractors - With these contacts, you not only need to find professionals that you trust and can work with. But you also you need someone that is preferably an investor themselves but if not, understands investment property and the end financial result you are seeking. A $45,000 home in a lower income neighborhood would be rehabbed differently than a $450,000 house in an expensive neighborhood and your appraiser and rehab crew need to understand those differences. Also your appraiser must understand the need to go through the house and give you an after repair value (ARV)as if any needed repairs were complete. In other words, he need to give you an AS-IS appraisal and at the same time a solid professional guesstimate of what the ARV will be when the property has been rehabbed completely.
You may need to go through a few appraisers to find a good one who is honest. You can usually call your bank or lender you are planning on using. This is sometimes best as they have specific lists of people they will and will not work with.
Take the same approach with your handymen and contractors. Tell them you need the job done for $4000, when you know it will cost $8,000. Make sure they are not cutting costs when they give you a bid, just to get the job. Some trimming is fine, but cutting the price in half, just to get the job, will almost always end up in a poor quality job as far as workmanship is concerned.
When identifying a new contractor, be tough. Ask for the moon and stars. Tell them that you want a rehab quote with pictures and estimates broken down by labor and materials as well as room by room. If they offer to give you this, then you have someone who is flexible and is willing to work with you.
Since time is the biggest factor when rehabbing a house, make sure your contractor gives you a firm date that the job will be completed. Also, when getting bids,make sure you get them back from the contractor in a timely manner. If you have a 7 day inspection clause in your purchase contract, tell your contractor “We are rushed and need thi back within 48 hours. Can you get this done for us right away and fax the bid to me within 48 hours?” You want to make sure they follow through on what they promise.
Also, send more than one handyman or contractor to a job, unless you’ve worked with them before. If you are working with someone new, make sure they are not the only quote you get. They may be too high or may do poor work and you will have no idea-even if they have been referred. If you get three or four bids for that same house, you will have a really solid idea of the scope of work and an accurate price of what it’s going to cost you to rehab that property.
About the Author
Please feel free to check Charrissa Cawley’s websites at REI Conferences or REI Training Center for other great Real Estate Investing Resources, tips and trends! Type in your name and email address and then click on Free Resources. You will find a tremendous amount of FREE and useful information! Feel free to give us a call at 1-888-2500-6616.
Tags: Appraisers, Attorneys, Due Diligence, Group Member, Handymen, Insurance Agents, Investing Company, Investor Group, Investors, Landlord Association, Lenders, Local Real Estate, Property Managers, Real Estate Agent, Real Estate Agents, Real Estate Investment, Real Estate Investment Group, Realtor, Referral, Rehab
Our company buys houses across the United States and we are constantly asked, “How do you do this successfully and live so far away from the properties you buy? How are you handling the rehab living so far away?” and “How are you so successful at this and not even living in the same states you’re investing in?” Here is my answer: I have an awesome power team of people that I trust in each and every market we go into. This team includes lenders, contractors, handymen, property managers, appraisers, attorneys, real estate agents and brokers, sign companies, insurance agents, tenants and buyers! It can sometime take a while to put this team together and yes you are probably going to go through a few not so great ones to get to the ones you like, know and trust. As your portfolio begins to grow, you will need more people on “your team”. The very BEST place to find these people is by a referral. That referral can come from another investor, a local real estate investment group member, a member of a local landlord association, a realtor, a friend or anyone else that you trust. Just be sure that they are “In the Business” and understand what it is that we do as investors. Always remember, the due diligence end of things is always your responsibility. Just because an investor recommends you use a certain agent, appraiser, lender or contractor does not mean they are the best person for the job. You should always get references from anyone you are even thinking of using.
Property Managers - Like your real estate agent and attorney, you need to find someone you can get along with. Interview them, as if you were going to rent a property to them. You want to make sure your property managers will handle your house like a landlord not a slumlord.
Insurance Agents- Shop Around to find an agent who can do non owner occupied (NOO) properties and give you a fair rate! I always look for a broker who can give me a competitive rate and is fair and most importantly, honest. I like to find insurance agents through referrals-that usually seems to be the best!
Lenders - This can be a tedious process. However, once you find just a couple of lenders in a specific area and they understand Investment property and NOO (Non-owner occupied) loans, you’re set! First and foremost, you will need to find someone that can loan in the area you are looking at investing in. There are private money and hard money lenders that are available in every state there is and sometimes using private money or hard money loans can be the easiest way to buy and rehab a house without using your own cash, especially if you don’t have good credit or much cash to put into the deal. Most private and hard money lenders charge anywhere from 4-8 points to originate the loan and 10-18% interest. This is not cheap, but it’s not really a horrible price to pay for the convenience of having money in 1-2 days. Sometimes, its not the cost of the money but the availability of the money that is most important. As long ad the yield is higher than the cost….that’s all that matters. In other words, if you are going to make more than what you spent to get into the deal, it should be a no-brainer! Here is the difference between lenders: Private and Hard Money Lenders are quick and can provide you with the cash you need quickly, but you are going to pay more. They provide a service that mortgage lenders and banks cannot typically do. They give you the money to purchase the house as well as provide the money to complete the rehab on the house. However, you must remember that you can’t keep a hard money loan on your property for any long period of time and expect to make any money-the money is expensive and will eat up your profits quickly. When taking out a private or hard money loan, you should not plan on keeping it more than 90-120 days at the most. If the project cannot be completed in that timeframe, don’t use hard money! To get a copy of our Hard Money Lender Rolodex, go to reitrainingcenter.com or reiconferences.com and enter your name and email on the popup that comes up.
Conventional Lenders are much less expensive but usually require better credit-at least decent credit. There is definitely more documentation and it takes a lot longer to complete a deal-typically 30-45 days to close. It’s nice to find a funding source that can provide both; however that’s usually not your typical scenario.
Whatever type of lender you decide to use, be sure to always line them up before you go searching for properties. It’s always best to have the money in place BEFORE you need it. Then, when you go to make offers, there I no delay. The last thing you want to do is get a property under contract only to find out you can’t get the money to purchase it. The investment market is a very small one and you definitely don’t want to develop a reputation for not being able to close deals!
Sign Companies - You can pick any sign company out of a phone book or wherever. I have previously used sign companies to put out and pick up signs in addition to showing my vacant properties to prospective tenants.
If you are going to manage your own properties, while living in another state, you will need a person to show the property to potential tenants. Realtors, Handymen and sometimes even appraisers can be great people to use for this, but sign companies are going to put out your signs in front of the house anyway. For a nominal fee, they may be willing to let someone in and show them the property. Don’t try to use a large national company for this. Call a local one-man type of shop. You can sometimes find them through referrals from other real estate investors or realtors.
Real Estate Agents & Brokers - This is not the easiest person to recruit for your team! You should never put all your eggs in one basket (ie…one realtor) However, you definitely want to develop strong relationships where agents know you, know you are a serious investor and that you are serious about purchasing multiple deals in one given area. You need to be on a mission to find a buyers agent who is willing to put in some legwork and then be compensated accordingly. If the agent knows you are looking to buy properties in this same area over and over again, they will almost always do whatever they can to accommodate you (take picture, email you comps in a timely fashion, for research, run the financials, etc) There are a lot of gents out there doing the real estate thing part time-those are not the ones you want. You also want to din agents whoa re investors themselves or who work with investors frequently and understand how to “play the game.”
After, you have a property in mind and you are calling an agent for the first time, you need to know a couple of things about the property. What work does the property need? What will it be worth once the work is done-that is the ARV (After repaired value)? What will this property rent for-what are rents in the area for properties similar to this one (Have them send you a rental analysis or something on paper-don’t just take their word. Alternatively, you can look in a local newspaper for the area and calla few local property management companies to verify local rents) What is the average time on the market if I were to resell the property? What do the ? mile and ? mile comps look like? If the agent can’t give you this information on a property , they are not the right agent. Also, you will want to make sure you find an agent who will go to the properties you are looking at buying and take several digital pictures and send them along to you. If they are not willing, find another agent! These agents need to understand that the chances are that you are going to buy this property without seeing it. They are acting as your eyes and ears on this purchase and its important that they look at this as if they were going to buy the property themselves and pay close attention to detail. After you purchase a home or two from one agent, they are going to be more willing to work with you and do what you need them to do. They want to see that you are serious and then they will usually perk up, pay attention and do whatever it is that you need them to do. This is the type of relationship you are seeking.
Attorneys - You need to employ the services of any attorney when wholesaling houses to other investors. We won’t get into the legalities and tax issues of “double closings”. This is where you use your buyer’s funds to pay the seller. You don’t spend any money out of your pocket. Your buyer writes a check to the attorney, the attorney pays the seller and writes you a check for the difference. Some attorneys will do this, some will not. If you don’t have the cash to fund the purchase, it’s nice to identify an attorney who will allow this. It can be as simple as asking. “Will they do a double close? And can you use buyers funds for your deal?” I recommend the honest approach, tell the attorney what it is that you want to accomplish and if he can make it work, great!
Before you decide who you are going to use, speak with a few different attorneys via telephone. Make sure are clear about your investment goals and what you are trying to achieve. Also make sure they are experienced attorneys who are used to working with investors because if the attorney understands you as an investor and what you are trying to accomplish, he or she can better protect you in the long run!
Tenants - If you are planning to buy, fix and rent out your properties, then you need to have tenants for your properties. Two great places to look if you want to rent your properties out through Section 8 is www.socialserve.com and www.gosection8.com. They will allow you to list your property in their databases for free and then those properties are marketed to tenants with section 8 vouchers who are looking for housing. This program is great and has saved me thousands of dollars in advertising costs to get tenants! If you decide not to rent your properties through section 8, you can run ads in the local newspaper. Also, be sure and put a sign in the yard letting everyone who drives or walks by the property that it is for rent. You will be surprised how quickly the word will travel!
Buyers - If you are going to wholesale a house here and there to another investor, you need to have a list of people that you can sell to and who buy houses wholesale to rehab and rent or sell. Its best to develop this list of people BEFORE you go out and put properties under contract.
As a company,, we have thousand of people on out list that say that they “Buy Properties.” However, our core list of really serious buyers who have lines of credit lined up and can pay cash for a property on a days notice is less than 100 people long. In your area, you need to know who that core group. You can always find buyers at your local landlord association or investment group meetings. You can also find buyers via referral through other investors or even agents. WE find a lot of our buyers online in local news and chat groups like yahoo as well. Ask local appraisers and title companies who the “Serious Investors” in the area are. They are usually more than willing to share this information with you. As you develop a reputation in a given market, the buyers will come to you for the deals. This is the best case scenario!
Appraisers, Handymen and Contractors - With these contacts, you not only need to find professionals that you trust and can work with. But you also you need someone that is preferably an investor themselves but if not, understands investment property and the end financial result you are seeking. A $45,000 home in a lower income neighborhood would be rehabbed differently than a $450,000 house in an expensive neighborhood and your appraiser and rehab crew need to understand those differences. Also your appraiser must understand the need to go through the house and give you an after repair value (ARV)as if any needed repairs were complete. In other words, he need to give you an AS-IS appraisal and at the same time a solid professional guesstimate of what the ARV will be when the property has been rehabbed completely.
You may need to go through a few appraisers to find a good one who is honest. You can usually call your bank or lender you are planning on using. This is sometimes best as they have specific lists of people they will and will not work with.
Take the same approach with your handymen and contractors. Tell them you need the job done for $4000, when you know it will cost $8,000. Make sure they are not cutting costs when they give you a bid, just to get the job. Some trimming is fine, but cutting the price in half, just to get the job, will almost always end up in a poor quality job as far as workmanship is concerned.
When identifying a new contractor, be tough. Ask for the moon and stars. Tell them that you want a rehab quote with pictures and estimates broken down by labor and materials as well as room by room. If they offer to give you this, then you have someone who is flexible and is willing to work with you.
Since time is the biggest factor when rehabbing a house, make sure your contractor gives you a firm date that the job will be completed. Also, when getting bids,make sure you get them back from the contractor in a timely manner. If you have a 7 day inspection clause in your purchase contract, tell your contractor “We are rushed and need thi back within 48 hours. Can you get this done for us right away and fax the bid to me within 48 hours?” You want to make sure they follow through on what they promise.
Also, send more than one handyman or contractor to a job, unless you’ve worked with them before. If you are working with someone new, make sure they are not the only quote you get. They may be too high or may do poor work and you will have no idea-even if they have been referred. If you get three or four bids for that same house, you will have a really solid idea of the scope of work and an accurate price of what it’s going to cost you to rehab that property.
About the Author
Please feel free to check Charrissa Cawley’s websites at REI Conferences or REI Training Center for other great Real Estate Investing Resources, tips and trends! Type in your name and email address and then click on Free Resources. You will find a tremendous amount of FREE and useful information! Feel free to give us a call at 1-888-2500-6616.
Tags: Appraisers, Attorneys, Due Diligence, Group Member, Handymen, Insurance Agents, Investing Company, Investor Group, Investors, Landlord Association, Lenders, Local Real Estate, Property Managers, Real Estate Agent, Real Estate Agents, Real Estate Investment, Real Estate Investment Group, Realtor, Referral, Rehab
As an investor, you should always be on the lookout for real estate investing opportunities.
With real estate there can be some great ones, so it is always best to be on the look out for them.
Every once in awhile, these opportunities might come your way easily, but for the most part, you must look for them. There is much more to real estate investing opportunities than a low purchase price.
Too many times have investors made this assumption only to find the hard way that an easy purchase is not always an easy sale. Knowing some tips to recognize real estate investing opportunities will help make your investing much easier.
Property worth is one of the first ways of recognizing real estate investing opportunities. You don?t have to hire an appraiser or a realtor to assist you in figuring out the worth of a real estate property. You can use some of the same techniques these professional use to determine property worth. Look up the price of similar properties that have recently sold. Between three and five properties will give you a good idea of the property worth.
Once you have determined the property worth, the next indicator of real estate investing opportunities is the amount of repairs the property needs. It doesn?t matter if you can purchase a property for a penny. If it costs need $50,000 in repairs and similar properties in good condition have sold for $40,000, then it should not be deemed as one of your real estate investing opportunities.
You can find out the repairs that are needed in one of two ways. The first way is to ask the seller what repairs are needed. Some sellers will be completely honest, some will not. The second way is to use a bonded contractor. You can get referrals for contractors from other investors or respected realtors.
The amount you can purchase a property for is perhaps the second most important factor in recognizing real estate investing opportunities. The lower you can purchase the property for, the better an opportunity it is. In general, the best real estate investing opportunities are those which you can purchase a home for 20% or more below market value. If you can negotiate even lower, that?s better.
At this point you can use an appraiser to tell you the value of the property. Any repairs should be made before the appraiser reviews the home. The object is to have the appraisals as high as possible to help you set your selling price. The selling price, relative to the purchase price, is the most important factor you can use to recognize real estate investing opportunities. The higher you can sell the property for, the better an opportunity it is.
There is a fair amount of work required in recognizing real estate investing opportunities. The first time you go through the process, it might be difficult and take what seems like a long time. As you get more experience you will learn to recognize an opportunity much easily and in a shorter amount of time. This, of course, will come with experience. You might make a few mistakes in the beginning, but these mistakes bring knowledge that will only make you better at picking out real estate investing opportunities.
About the Author:
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Tags: Assumption, Great Real Estate, Investing, Investor, Investors, Lookout, Property Worth, Real Estate Property, Realtor, Realtors, Referrals, Two Ways
This article gives you a foundational understanding of residential real estate investing analysis, and a formula for determining how much to offer when purchasing property for rehab and wholesale purposes.
Anyone can learn the simple skill of real estate investing analysis. The important point to understand is that the analysis will vary, depending on the type of real estate being discussed. This article focuses exclusively on residential single family and duplex properties purchased for rehab and wholesale purposes.
The first step in your real estate investing analysis is to determine the fair market value of the property after all repairs have been completed. This is done most accurately by having a Realtor run a comparable sales comparison report. Make sure the properties your Realtor chooses are truly comparable, not simply the same bedroom count, but also the same type of construction, in the same neighborhood, roughly the same age, etc..
The next step in performing your real estate investing analysis is to determine the cost of all needed repairs to bring the property into what I call ?retail condition?. In other words, how much will all the repairs cost to complete, including materials, labor, and holding costs?
Once you have determined these two values- After Repair Market Value and Repair Costs- the next step in the real estate investing analysis process is some simple subtraction. Subtract the Repair Costs from the After Repair Market Value to arrive at the property?s Current Market Value.
Once you are armed with the Current Market Value of a property, it?s a simple matter to complete the real estate investing analysis and arrive at your offer price. Your offer price will be the Current Market Value minus either $20,000 or 30%, whichever is lower.
To make this real estate investing analysis process all very clear, here’s an example: Suppose you are looking at a single family home in a mid-priced neighborhood. The Realtor pulls Comparables and you determine that the After Repair Value of the property is $150,000. You further estimate that the repairs needed will cost $30,000 to complete, including materials, labor, and holding costs.
Next, as part of your real estate investing analysis, you subtract the $30,000 Repair Costs from the $150,000 After Repair Value, and arrive at a Current Market Value of $120,000. You subtract $20,000 from $120,000 and get $100,000. You also subtract 30% from $120,000 and get $84,000. The lesser of $100,000 or $84,000 is $84,000, so that is your offer price- $84,000.
Using this formula for real estate investing analysis you may miss out on a few properties you could have bought otherwise, but you will never overpay for a property, and you will always make money.
Now, go make more offers!
Crush The Biggest Obstacle to Your Success in Real Estate… or Anything Else! Download my FREE report HERE!
Tom Dunn is a successful real estate investor and author of the popular DealFiles Real Estate Investor Stories free newsletter. You are welcome to share this report, unedited and in it’s entirety, with anyone you like. You may not remove this text. ? 2007 by Tom Dunn. Website: http://www.dealfiles.com e-mail: tom@dealfiles.com
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Tags: Comparable Sales, Comparison Report, Current Market Value, Duplex Properties, Fair Market Value, Important Point, Neighborhood, Realtor, Rehab, Residential Real Estate, Simple Matter, Single Family, Subtraction, Wholesale
This article gives you a foundational understanding of residential real estate investing analysis, and a formula for determining how much to offer when purchasing property for rehab and wholesale purposes.
Anyone can learn the simple skill of real estate investing analysis. The important point to understand is that the analysis will vary, depending on the type of real estate being discussed. This article focuses exclusively on residential single family and duplex properties purchased for rehab and wholesale purposes.
The first step in your real estate investing analysis is to determine the fair market value of the property after all repairs have been completed. This is done most accurately by having a Realtor run a comparable sales comparison report. Make sure the properties your Realtor chooses are truly comparable, not simply the same bedroom count, but also the same type of construction, in the same neighborhood, roughly the same age, etc..
The next step in performing your real estate investing analysis is to determine the cost of all needed repairs to bring the property into what I call ?retail condition?. In other words, how much will all the repairs cost to complete, including materials, labor, and holding costs?
Once you have determined these two values- After Repair Market Value and Repair Costs- the next step in the real estate investing analysis process is some simple subtraction. Subtract the Repair Costs from the After Repair Market Value to arrive at the property?s Current Market Value.
Once you are armed with the Current Market Value of a property, it?s a simple matter to complete the real estate investing analysis and arrive at your offer price. Your offer price will be the Current Market Value minus either $20,000 or 30%, whichever is lower.
To make this real estate investing analysis process all very clear, here’s an example: Suppose you are looking at a single family home in a mid-priced neighborhood. The Realtor pulls Comparables and you determine that the After Repair Value of the property is $150,000. You further estimate that the repairs needed will cost $30,000 to complete, including materials, labor, and holding costs.
Next, as part of your real estate investing analysis, you subtract the $30,000 Repair Costs from the $150,000 After Repair Value, and arrive at a Current Market Value of $120,000. You subtract $20,000 from $120,000 and get $100,000. You also subtract 30% from $120,000 and get $84,000. The lesser of $100,000 or $84,000 is $84,000, so that is your offer price- $84,000.
Using this formula for real estate investing analysis you may miss out on a few properties you could have bought otherwise, but you will never overpay for a property, and you will always make money.
Now, go make more offers!
Crush The Biggest Obstacle to Your Success in Real Estate… or Anything Else! Download my FREE report HERE!
Tom Dunn is a successful real estate investor and author of the popular DealFiles Real Estate Investor Stories free newsletter. You are welcome to share this report, unedited and in it’s entirety, with anyone you like. You may not remove this text. ? 2007 by Tom Dunn. Website: http://www.dealfiles.com e-mail: tom@dealfiles.com
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Tags: Comparable Sales, Comparison Report, Current Market Value, Duplex Properties, Fair Market Value, Important Point, Neighborhood, Realtor, Rehab, Residential Real Estate, Simple Matter, Single Family, Subtraction, Wholesale
One of the problems faced by many newbies (new investors) in the real estate business is lack of confidence. Confidence cannot be built without doing the activity that you are trying to build confidence in. This presents a problem with most people because real estate is not something that you can just practice, you cannot practice buying a house, or practice selling it. You could pretend to buy houses I guess, or pretend to sell houses, but pretending is for kids. This is where real estate bird-dogging comes into play. It gives you a reason to practice, you get paid. Now if money won’t make you practice then nothing will.
Instead of not getting paid for all those hours spent learning the market, you could be making thousands. I cannot think of a better way to learn real estate than getting out and looking for good deals, then finding good deals and showing them to buyers, who pay you for your services. Then after the buyers close you can follow the progress of the home and see if you made a good decision or not. The best part is that during your practice, even if you made a not so great decision you still get paid, and you do not lose a penny.
I started out my investment career as a Realtor. I built my confidence through selling investment properties to other people and watching them make money. After selling 9 homes to other investors and seeing them profit tremendously, I knew it was time for me to start making myself some money.
Eric Medemar is a realtor and real estate investor with 30+properties. He specializes in wholesaling, assigning, and flipping real estate. In 2007 He has already made close to $100,000 flipping properties. His goal is to help at least 170 people skyrocket their investment careers in 2007. http://www.BirdDogBiz.com http://www.TheMillionairesBlog.com
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Tags: Buying A House, Dogging, Eric, Estate Business, Flipping Properties, Flipping Real Estate, Good Deals, Guess, Investing, Investment Career, Investment Properties, Investors, Lack Of Confidence, Money, People, Presents, Real Estate Investor, Real Play, Realtor, Reason
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