There are many reasons a real estate investor might want to have a ready access to private money for real estate investing. This article will explore a few of those reasons.
The first reason to use private money for real estate investing is to protect your credit rating. Think about this… if you borrow the money from a private individual, rather than a bank or lending institution, the loan will never be reported to the credit bureau. It won’t count against your debt-to-income ratio, and no record of the payment history will be kept. No one will ever know about that loan, unless you tell them.
Next, and one of the very best reasons to use private money for real estate investing, is the elimination of paperwork. I have never had to complete a loan application for private money for real estate investing. The lenders I work with all know me and the kind of investing I do. Many of them never even care to see the property. When I apply for a mortgage, on the other hand, the application process itself can take several days, and there are mountains of paper.
Yet another reason to use private money for real estate investing is the ready access to fast cash. Sometimes, when a deal is especially good, moving super-fast is a necessity. With bank financing, that kind of speed is often impossible. Even lines of credit don’t always give you the same speed capability that private lenders do. With one phone call to one of my private lenders, I can tie up a deal that other investors only dream about.
A great reason to use private money for real estate investing is the leverage that it gives you. Think about this… if you have $50,000 of your own money, is it better to pay all cash for a $50,000 property, or to put $50,000 cash down on a $500,000 property and use private lenders to finance the rest?
If you answered the $500,000 property, you’re right- and here’s why. Let’s say the $50,000 property rents for $500 per month, or $6,000 per year. Your Return On Investment (ROI would be 12% the first year ($6,000 divided by $50,000). It’s safe to assume the rent on the $500,000 property might be about 10 times that of the $50,000 property, or about $60,000 for the year. If your payback to your lender totals $4,000 per month, or $48,000 per year, what’s your Return On Investment (ROI) for the $500,000 property? If you answered 24%, give yourself a gold star!
Of course, you would need to take into account the cost of borrowing the money, but even after doing that, you can see there really is no comparison. Using private money for real estate investing gives you something called leverage. Leverage is the ability to move something very large with something very small… a lever. The lever, in this case, is your small amount of cash ($50,000). With it, you can “move” or control a $500,000 property, because the private lender’s money increases the power of your “lever”.
Here I’ve given you a few of the many great reasons for using private money for real estate investing. There are more, but you should have a clear picture of why private money can be so useful in your real estate investing toolkit. If you would like more information, I have written another article on my website titled Private Money For Real Estate Investing.
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: DealFiles.com
e-mail: tom@dealfiles.com
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Tags: Application Process, Bank Financing, Credit Bureau, Credit Rating, Debt To Income Ratio, Hellip, Lending Institution, Leverage, Loan Application, Money Lenders, Paperwork, Payment History, Phone Call, Private Individual, Private Lenders, Private Money, Real Estate Investing, Real Estate Investor, Rents, Speed Capability
There are many reasons a real estate investor might want to have a ready access to private money for real estate investing. This article will explore a few of those reasons.
The first reason to use private money for real estate investing is to protect your credit rating. Think about this… if you borrow the money from a private individual, rather than a bank or lending institution, the loan will never be reported to the credit bureau. It won’t count against your debt-to-income ratio, and no record of the payment history will be kept. No one will ever know about that loan, unless you tell them.
Next, and one of the very best reasons to use private money for real estate investing, is the elimination of paperwork. I have never had to complete a loan application for private money for real estate investing. The lenders I work with all know me and the kind of investing I do. Many of them never even care to see the property. When I apply for a mortgage, on the other hand, the application process itself can take several days, and there are mountains of paper.
Yet another reason to use private money for real estate investing is the ready access to fast cash. Sometimes, when a deal is especially good, moving super-fast is a necessity. With bank financing, that kind of speed is often impossible. Even lines of credit don’t always give you the same speed capability that private lenders do. With one phone call to one of my private lenders, I can tie up a deal that other investors only dream about.
A great reason to use private money for real estate investing is the leverage that it gives you. Think about this… if you have $50,000 of your own money, is it better to pay all cash for a $50,000 property, or to put $50,000 cash down on a $500,000 property and use private lenders to finance the rest?
If you answered the $500,000 property, you’re right- and here’s why. Let’s say the $50,000 property rents for $500 per month, or $6,000 per year. Your Return On Investment (ROI would be 12% the first year ($6,000 divided by $50,000). It’s safe to assume the rent on the $500,000 property might be about 10 times that of the $50,000 property, or about $60,000 for the year. If your payback to your lender totals $4,000 per month, or $48,000 per year, what’s your Return On Investment (ROI) for the $500,000 property? If you answered 24%, give yourself a gold star!
Of course, you would need to take into account the cost of borrowing the money, but even after doing that, you can see there really is no comparison. Using private money for real estate investing gives you something called leverage. Leverage is the ability to move something very large with something very small… a lever. The lever, in this case, is your small amount of cash ($50,000). With it, you can “move” or control a $500,000 property, because the private lender’s money increases the power of your “lever”.
Here I’ve given you a few of the many great reasons for using private money for real estate investing. There are more, but you should have a clear picture of why private money can be so useful in your real estate investing toolkit. If you would like more information, I have written another article on my website titled Private Money For Real Estate Investing.
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: DealFiles.com
e-mail: tom@dealfiles.com
|
|
Tags: Application Process, Bank Financing, Credit Bureau, Credit Rating, Debt To Income Ratio, Hellip, Lending Institution, Leverage, Loan Application, Money Lenders, Paperwork, Payment History, Phone Call, Private Individual, Private Lenders, Private Money, Real Estate Investing, Real Estate Investor, Rents, Speed Capability
Real estate investors don’t need to ask the question, “What is real estate investing?” They know the answer, because they know what real estate investing means to them, which may be something quite different than it means to someone else. What is real estate investing to you?
You could ask five different people the question, “What is real estate investing?” and get five completely different answers. The only thing for sure is that real estate investing normally involves real estate. Let me tell you what I mean.
First, to one person, real estate investing might mean buying and selling. Normally, the investor wants to buy low and sell high, and this kind of investor doesn’t normally want to hold on to a piece of property for very long. Their answer to “What is real estate investing?” is “Quick turn around.”
Another person’s answer to the question, “What is real estate investing?” might mean buying and holding. This kind of person doesn’t mind the thought of being a landlord, and doesn’t mind the idea of managing tenants and collecting rents. Maintenance and upkeep don’t scare this investor.
Yet another type of investor is interested in high-value commercial property like hotels, office buildings, and malls. This is a high-risk, high-reward game played for big stakes. When asked, “What is real estate investing?” this investor doesn’t shy away from mega-sized deals.
One more type of investor prefers rehabbing and repairing. This investor buys the worst property and uses their skills and abilities to turn it around and make it nice again. These investors breathe new life into old properties. Their answer to, “What is real estate investing?” involves creating something of great value from next to nothing. People with construction experience or project management skills fit this type of investing best.
There’s also the kind of real estate investor who doesn’t actually buy any property at all. Their answer to, “What is real estate investing?” may involve partnerships, trusts, and possibly even the sale of notes, mortgages, and other financial instruments.
Real estate investing is a very big umbrella, and there are as many different answers to the question, “What is real estate investing?” as there are individual investors. Your job is to do the research, learn the strategies and then decide for yourself which style fits you.
At my website, I’ve written a more in-depth article on the question, “What Is Real Estate Investing?”
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: Being A Landlord, Construction Experience, Game, Hotels, Investor, Malls, Office Buildings, Project Management Skills, Real Estat, Real Estate Investing, Real Estate Investors, Rents, Rsquo, Scare, Skills And Abilities, Upkeep
If you’re thinking about investing in real estate to make money, you need to first determine your financial goals. Do you need to make money quickly, invest for your children’s college fund, or build wealth for your retirement? Once you determine your financial goals, you need to decide which type of investing strategy works for you.
Make Money in Real Estate - Fast Cash Strategy
If you’re low on cash, get started by finding a bargain house and selling the contract to another real estate investor. Join a real estate investing club to find investors willing to pay you for finding good deals.
Make Money in Real Estate - Income Property Strategy
If you want to increase your monthly income, look for income property that returns a positive net income from month to month. Start with single family house. Look for a bargain below market value. Fix up the house to generate top rental income. Find houses that will rent for more than your mortgage payment. You may need to go out from your home area to a location that supports this type of return on your money. You can’t pay $300,000 for a home with a mortgage of $1,500 that only rents for $1,000. You might start with a home for around $300,000 that rents for $1,750. You will need good credit to get a loan with good interest rates. In a few years, your rental income should go up. Many real estate investors enjoy thousands of dollars each month generated by income property.
However, some investors don’t like dealing with tenants and prefer to make money in other real estate ventures.
Make Money in Real Estate - Investment Property Strategy
If you want to make money focusing on profits, investment property offers a different strategy. Instead of worrying about rental income, look for property that you can transform and sell or property that will appreciate significantly over time. Besides fixing a house up, you can transform a property by changing it. For instance, some investors buy apartment buildings and turn them into condominiums. Many investors speculate in land and make money by holding the land until new development in the area increases the value.
Examine your financial situation along with your long term goals. You can get started by flipping properties, move onto income properties, and then make larger profits with investment properties. You might end up using a combination of all three strategies to make money investing in real estate.
Copyright ? Jeanette J. Fisher
About the Author: Jeanette Fisher teaches how to find, finance, fix and sell. Free ebooks “Credit Tips” http://worryfreecredit.com “Flipping Houses” at http://doghousetodollhousefordollars.com
Tags: Bargain Market, Financial Goals, Good Deals, Interest Rates, Investing In Real Estate, Investing Money, Mortgage Payment, Net Income, Profits, Property Strategy, Real Estate Investment, Real Estate Investment Property, Real Estate Investor, Real Estate Investors, Rents, Retirement, S College, Single Family, Strategy Works, Thousands Of Dollars
Everybody has a different theory about how best to win at Monopoly. Some say The Railroads are the answer, others the Utilities. For some it?s crucial to own Boardwalk and Park Place, and for others it?s the green and orange properties. When it comes to deciding on the best real estate investing program, you can learn a lot from Monopoly.
If you?re actively looking for the best real estate investing program, and you?re trying to decide whether to invest in houses or apartments, you could try approaching investing like you would approach a game of Monopoly. If nothing else, it will make for an interesting exercise.
When you own property in Monopoly, your primary goal is to acquire all of a particular color group, and your purpose is clear- to be able to build houses and, ultimately, hotels. The more houses, the higher the rents, and hotels allow rents that are higher still. This remains one of the best Monopoly strategies, and I believe it?s also the best real estate investing program for many people.
I consider a hotel in Monopoly to be roughly the equivalent of an apartment building.
Following the Monopoly logic, you would begin by acquiring houses, both single family and duplexes. Using a combination of creative financing, rehabbing, and wholesaling, and being very careful to buy value, you would build up your cash and equity reserves. This is the first phase of the best real estate investing program.
In the second phase of the best real estate investing program, you would leverage this equity and cash into larger 3-5 unit apartment houses in appreciating neighborhoods. At the same time, you will be acquiring topnotch property management skills, and learning the ins and outs of 1031 exchanges and financing strategies.
Phase three would find you trading some of your mid-size apartment houses for large apartment buildings and multi-unit complexes, letting the economy of scale and the cumulative power of depreciation, appreciation, and cash flow make you a very wealthy Monopoly player. Can you see why this may be the best real estate investing program of all?
Over a 5-10 year period, making allowance for a mistake here and there, there?s no reason you couldn?t wind up controlling several million dollars worth of property, and several hundred rental units. Then your toughest decision may be whether to sell Connecticut Avenue and buy Park Place!
For more on getting started right, see The Best Real Estate Investing Program
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: 1031 Exchanges, Apartment Building, Apartment Buildings, Apartment Houses, Boardwalk, Color Group, Creative Financing, Duplexes, Economy Of Scale, Management Skills, Mid Size, Monopoly, Monopoly Theory, Orange Properties, Park Place, Rehabbing, Rents, Second Phase, Size Apartment, Unit Apartment
If you’re thinking about investing in real estate to make money, you need to first determine your financial goals. Do you need to make money quickly, invest for your children’s college fund, or build wealth for your retirement? Once you determine your financial goals, you need to decide which type of investing strategy works for you.
Make Money in Real Estate - Fast Cash Strategy
If you’re low on cash, get started by finding a bargain house and selling the contract to another real estate investor. Join a real estate investing club to find investors willing to pay you for finding good deals.
Make Money in Real Estate - Income Property Strategy
If you want to increase your monthly income, look for income property that returns a positive net income from month to month. Start with single family house. Look for a bargain below market value. Fix up the house to generate top rental income. Find houses that will rent for more than your mortgage payment. You may need to go out from your home area to a location that supports this type of return on your money. You can’t pay $300,000 for a home with a mortgage of $1,500 that only rents for $1,000. You might start with a home for around $300,000 that rents for $1,750. You will need good credit to get a loan with good interest rates. In a few years, your rental income should go up. Many real estate investors enjoy thousands of dollars each month generated by income property.
However, some investors don’t like dealing with tenants and prefer to make money in other real estate ventures.
Make Money in Real Estate - Investment Property Strategy
If you want to make money focusing on profits, investment property offers a different strategy. Instead of worrying about rental income, look for property that you can transform and sell or property that will appreciate significantly over time. Besides fixing a house up, you can transform a property by changing it. For instance, some investors buy apartment buildings and turn them into condominiums. Many investors speculate in land and make money by holding the land until new development in the area increases the value.
Examine your financial situation along with your long term goals. You can get started by flipping properties, move onto income properties, and then make larger profits with investment properties. You might end up using a combination of all three strategies to make money investing in real estate.
Copyright ? Jeanette J. Fisher
About the Author: Jeanette Fisher teaches how to find, finance, fix and sell. Free ebooks “Credit Tips” http://worryfreecredit.com “Flipping Houses” at http://doghousetodollhousefordollars.com
Tags: Bargain Market, Financial Goals, Good Deals, Interest Rates, Investing In Real Estate, Investing Money, Mortgage Payment, Net Income, Profits, Property Strategy, Real Estate Investment, Real Estate Investment Property, Real Estate Investor, Real Estate Investors, Rents, Retirement, S College, Single Family, Strategy Works, Thousands Of Dollars
There are many reasons a real estate investor might want to have a ready access to private money for real estate investing. This article will explore a few of those reasons.
The first reason to use private money for real estate investing is to protect your credit rating. Think about this… if you borrow the money from a private individual, rather than a bank or lending institution, the loan will never be reported to the credit bureau. It won’t count against your debt-to-income ratio, and no record of the payment history will be kept. No one will ever know about that loan, unless you tell them.
Next, and one of the very best reasons to use private money for real estate investing, is the elimination of paperwork. I have never had to complete a loan application for private money for real estate investing. The lenders I work with all know me and the kind of investing I do. Many of them never even care to see the property. When I apply for a mortgage, on the other hand, the application process itself can take several days, and there are mountains of paper.
Yet another reason to use private money for real estate investing is the ready access to fast cash. Sometimes, when a deal is especially good, moving super-fast is a necessity. With bank financing, that kind of speed is often impossible. Even lines of credit don’t always give you the same speed capability that private lenders do. With one phone call to one of my private lenders, I can tie up a deal that other investors only dream about.
A great reason to use private money for real estate investing is the leverage that it gives you. Think about this… if you have $50,000 of your own money, is it better to pay all cash for a $50,000 property, or to put $50,000 cash down on a $500,000 property and use private lenders to finance the rest?
If you answered the $500,000 property, you’re right- and here’s why. Let’s say the $50,000 property rents for $500 per month, or $6,000 per year. Your Return On Investment (ROI would be 12% the first year ($6,000 divided by $50,000). It’s safe to assume the rent on the $500,000 property might be about 10 times that of the $50,000 property, or about $60,000 for the year. If your payback to your lender totals $4,000 per month, or $48,000 per year, what’s your Return On Investment (ROI) for the $500,000 property? If you answered 24%, give yourself a gold star!
Of course, you would need to take into account the cost of borrowing the money, but even after doing that, you can see there really is no comparison. Using private money for real estate investing gives you something called leverage. Leverage is the ability to move something very large with something very small… a lever. The lever, in this case, is your small amount of cash ($50,000). With it, you can “move” or control a $500,000 property, because the private lender’s money increases the power of your “lever”.
Here I’ve given you a few of the many great reasons for using private money for real estate investing. There are more, but you should have a clear picture of why private money can be so useful in your real estate investing toolkit. If you would like more information, I have written another article on my website titled Private Money For Real Estate Investing.
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: DealFiles.com
e-mail: tom@dealfiles.com
|
|
Tags: Application Process, Bank Financing, Credit Bureau, Credit Rating, Debt To Income Ratio, Hellip, Lending Institution, Leverage, Loan Application, Money Lenders, Paperwork, Payment History, Phone Call, Private Individual, Private Lenders, Private Money, Real Estate Investing, Real Estate Investor, Rents, Speed Capability
If you’re thinking about investing in real estate to make money, you need to first determine your financial goals. Do you need to make money quickly, invest for your children’s college fund, or build wealth for your retirement? Once you determine your financial goals, you need to decide which type of investing strategy works for you.
Make Money in Real Estate - Fast Cash Strategy
If you’re low on cash, get started by finding a bargain house and selling the contract to another real estate investor. Join a real estate investing club to find investors willing to pay you for finding good deals.
Make Money in Real Estate - Income Property Strategy
If you want to increase your monthly income, look for income property that returns a positive net income from month to month. Start with single family house. Look for a bargain below market value. Fix up the house to generate top rental income. Find houses that will rent for more than your mortgage payment. You may need to go out from your home area to a location that supports this type of return on your money. You can’t pay $300,000 for a home with a mortgage of $1,500 that only rents for $1,000. You might start with a home for around $300,000 that rents for $1,750. You will need good credit to get a loan with good interest rates. In a few years, your rental income should go up. Many real estate investors enjoy thousands of dollars each month generated by income property.
However, some investors don’t like dealing with tenants and prefer to make money in other real estate ventures.
Make Money in Real Estate - Investment Property Strategy
If you want to make money focusing on profits, investment property offers a different strategy. Instead of worrying about rental income, look for property that you can transform and sell or property that will appreciate significantly over time. Besides fixing a house up, you can transform a property by changing it. For instance, some investors buy apartment buildings and turn them into condominiums. Many investors speculate in land and make money by holding the land until new development in the area increases the value.
Examine your financial situation along with your long term goals. You can get started by flipping properties, move onto income properties, and then make larger profits with investment properties. You might end up using a combination of all three strategies to make money investing in real estate.
Copyright ? Jeanette J. Fisher
About the Author: Jeanette Fisher teaches how to find, finance, fix and sell. Free ebooks “Credit Tips” http://worryfreecredit.com “Flipping Houses” at http://doghousetodollhousefordollars.com
Tags: Bargain Market, Financial Goals, Good Deals, Interest Rates, Investing In Real Estate, Investing Money, Mortgage Payment, Net Income, Profits, Property Strategy, Real Estate Investment, Real Estate Investment Property, Real Estate Investor, Real Estate Investors, Rents, Retirement, S College, Single Family, Strategy Works, Thousands Of Dollars
Daytona Beach is commonly known as “the spot” for spring breakers. What many people don’t realize is that it is a good place for real estate investors as well. Located on the eastern coast of Florida, Daytona Beach has recently become a profitable market, as the average home price is approximately $212,000, and has grown over 25% since last year. This growth is expected to continue for at least the next 12 months.
One of the things that sets Daytona Beach apart from cities typically popular for real estate investing is the fact that it does not have the statistics for hurricane hits as many other cities, such as Miami and Key West. This is a tremendous benefit. If a rental property happens to get hit by a hurricane, the cost of repairing the property could greatly offset any profits that would have been made during that time. If a property is badly damaged, it will most likely need to be completely rebuilt, which is a huge expense, especially when you consider what the cost of labor will skyrocket to, since there will be ocnsiderable demand. For this reason, Daytona Beach is perfect for investors.
Daytona Beach is a prime market for investors that would also like to invest in beachfront property, since there is an opportunity to make a sizeable amount of money. All year long, because of the sunny weather, people from all over the country visit Daytona Beach to visit family, to take a vacation, or both. Beachfront property rents anywhere from $500 to $5000 per week. If your property was rented out everyday of the week for a full year, this would yield between $26,000 and $260,000 per year, depending on the rent that is charged. Investors that have a fair amount of money to spend should consider beachfront property in Daytona Beach, since its an investment property that can be rented out 12 months out of the year.
The population of Daytona Beach has been steadily increasing over the fast few years as well. Because of this, there is an increased demand for homes. However, it’s important to keep in mind that the sales cycle, at thirty to sixty days, is a little longer than other Florida cities. In order for investors to avoid being affected by this lag time in turnaround, it is important that properties are priced comparable to that of properties that have recently sold in the area. If the house is on the market too long, due to the price being inflated, people will lose interest in it rather quickly, thinking that there is something wrong with it.
All in all, people interested in the real estate market at Daytona Beach stand to gain a sizeable profit if they are in the right place at the right time. Research and patience will prove to be your greatest virtue.
About the Author
Tabitha Naylor is an experienced mortgage broker/consultant with Apex Financial Mortgage. For more information, or additional resources on home loans, visit Apex Financial Mortgage
Tags: 12 Months, Amount Of Money, Beachfront Property, Benefit, Florida Daytona Beach, Hurricane Hits, Investment Property, Key West, Population, Prime Market, Profitable Market, Profits, Real Estate Investing, Real Estate Investors, Rental Property, Rents, Spring Breakers, Statistics, Sunny Weather, Will Most Likely Need
Knowing what a Good Deal is Is the Key to Success in Real Estate.
Knowing what a Good Deal is Is the Key to Success in Real Estate.
Knowing and being able to negotiate good real estate deals every time is the key to real estate investing success. What to look for, and how to calculate your profit, cashflow and risk exactly and then evaluate the deal is revealed. These techniques apply to all real estate investments including foreclosures, short sales, rehabs, flips, muliti-family, lease option and owner financing.
Dear Investor,
Take this little survey: The most important key to Real Estate Success is:
1. Finding Motivated Sellers
2. Funding Your Deals
3. Negotiating
4. Knowing a Good Deal when you see one.
Yes all of them are important. And if you answered #4 you’re right on the money. Why, because if your deal is a not good one, all your other skills and marketing and power will not make you money, and may even lead to disaster.
On the other hand, if you can unfailingly target good deals, you will always be successful and all the other skills and your marketing methods will serve to increase your success.
It’s a lot easier to state the question than give the answer. Why?
SO… WHAT IS A GOOD DEAL?
It’s a lot easier to state the question than give the answer. Why?
Because it depends on many factors like:
> Market value and purchase price
> Expenses, carrying costs, repairs
> Cashflow and profit
> Holding time
> Loan terms
> Risk factors
> And more . . .
And most importantly, it depends on the type of deal you’re doing. For example, if you have a loan on a property that you intend to rent or sell on a lease option, the terms of the mortgage, future tax increases, and current area rents are critical to consider in insuring a positive cashflow. However, if you are planning to do a short rehab job, and sell or just flip to another investor, rental income is irrelevant as are future tax increases.
IT’S WHAT YOU DON’T THINK ABOUT THAT CAN GET YOU
The thing that trips up many investors, is that in our enthusiasm to do a deal that we’ve found, we don’t take into consideration “hidden” costs.
For example, if you’re doing a renovation and you’ve done your due diligence on contractor costs, have you also considered your carrying costs such as mortgage payments, utilities, etc. not only during the renovation, but also the time it will take to sell and close with a new buyer?
Or if you’re using a realtor to sell the property, have you calculated the effect of a 6-7% commission and the closing costs the seller will pay on your bottom line. A 10% profit margin can shrink pretty quickly to zero under those circumstances.
READ THOSE LOAN TERMS CAREFULLY
Or have you taken into account, not just your loan to value ratio on the property, but your investment to value ratio (e.g., the total of all outstanding loan balances plus the additional funds you’ve put in from your own cash or borrowed from your home equity line or friends and family)?
And on the income side, have you calculated how long you should hold the property to receive a significant profit from the pay down of the mortgage. With a new 30 yr loan, you may have to wait 5-10yrs to get the same pay down you’d get after a few years from a 30yr loan that’s been seasoned for 10 years.
And did you carefully read the note contracts to take account of adjustable rates and pre-payment penalties?
CHECKLISTS AREN’T ENOUGH
A number of courses and real estate gurus will give you checklists. That’s helpful in not forgetting something, but it doesn’t help you with the laborious and complex task of putting all the numbers together.
There’s just something about working with the actual real numbers, that brings the reality of the deal into actual focus. Our hopes and wishes dissolve before the actual profit and loss calculations.
Moreover, the numbers can pinpoint the weaknesses in a deal, and point the way to a solution. No mere checklist can do that.
WHAT ABOUT RISK?
I think you’ll also agree that a Good Deal, is not just High Profit, but also, most importantly Low Risk. Many a dream of a golden future has come crashing down because some little thing went wrong.
Many a would-be mogul, is now working at a 9 to 5 because their killer deal was wrecked by an unforseen glitch. This is what we mean by high risk.
The successful investors do deals with low risk. Deals that are so robust that even if almost everything went wrong they’d still come out with a profit.
BUILD IN A SAFETY MARGIN
For example, suppose you have a rental with a positive cashflow. Is your cashflow high enough or your option payment big enough, that even if you had to evict your tenant for non-payment and it took you 2 months to fill it with another cash-paying customer, you’d still come out ahead?
Or, is your investment to value so low that even if you had to offer your buyer a big discount for a quick sale, you’d still walk away from the closing table with a fat check?
In real estate things can and usually do go wrong. It’s Normal. So, wouldn’t you like all your deals to have these kinds of safety margins?
FIXING THE PROBLEMS WITH YOUR DEAL
Now, if you knew in advance that your risk was too high, or your cashflow was too low, or your profit over the life of the deal wasn’t enough, you’d want to think of solutions.
This is what is meant by being a “transaction engineer”. Find the solution, fix the problem, test it on the numbers, and then negotiate it into the deal.
And if you can’t find a solution (but there always is one) or the seller won’t accept itNEXT!
A RISKY DEAL IS NEVER WORTH DOING!
I can tell you from real experience, a bad or risky deal is NEVER WORTH DOINGno matter how enticing the vision. The personal stress, heartache, and loss of confidence can be even more harmless than the potential financial loss. In the words of an ex-president’s wife, if you are faced with doing a bad dealJust say No!
WHAT’S THE ANSWER?
Some experienced investors have a feel for good deals, and can avoid trouble most of the time. Others only do a particular type of deal and use a rough “rule of thumb” to evaluate their risk and profit.
However, what’s really needed is a “calculator” or computer program that will take in all the variables and
> Calculate the exact profit and cashflow for all kinds of deals.
> Measure and Evaluate the financial risk in the deal
> Use standard and safe criteria for what constitutes a good deal
> Suggests alternatives to fix what is wrong
A DEAL EVALUATION TOOL
We’ve taken tons of real estate courses and looked at all kinds of real estate software, and nothing has come close to what we as investors need. So we decided to create our own Deal Evaluation Tool.
Well after several months of testing and improvement, we now use it for all our dealsshort sales, subject to, lease option, rehab, wholesaling, and even some commercial.
Since we can try out different “what-if” scenarios, it’s kept us away from some real pitfalls, and helped us negotiate better profit margins. We wouldn’t “leave home without it”.
CONSTANTLY MEETING THE NEEDS OF INVESTORS
Well, some other investors wanted to try it, so we put it on our website. Much to our delight we now have a community of users and a users group that shares their insights about doing deals and creative ways to use the Deal Evaluation Tool.
Their suggestions, are leading to a rapid improvement of already incredibly useful tool. There is just nothing out there like it. We’ve also put a demo up for those investors who would like to get a feel for using it. And we hold classes for new users.
Knowing all the numbers, and having evaluated our risks with the Deal Evaluation Tool gives us more confidence in negotiating deals with sellers and more consistent high profit real estate deals.
And that’s what we all want, isn’t it.
Best of Success,
Richard Odessey
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About the Author: Richard & Michelle are experienced investors & founders of the premier site on the internet - http://www.InvestorWealth.com: training real estate investors to do high profit deals. Offering Free Teleseminars by the top real estate investors, how-to tools and kits and hands-on training with personal advice from experts from the comfort of your home
