Knowing what to pay for a home is critical in the rehabbing game. I’ve come up with my own method for determining my purchase price for a property. While I don’t think my method will work for everybody, maybe it will give you a good place to start or perhaps, some new ideas.
There are a lot of different variables that you’ll have to take into account on any specific deal; I’m interested to know from other rehabbers how their math looks.
Calculating the Purchase Price for a Rehab Property
Step 1: Know the value of the property. – That is the resale, after repairs value of the home. Make sure you view actual recent comparable sales. Once I feel confident I know what a property is worth I deduct 26% from that price. 20% is what I like to shoot for in a profit. With the market firming up here lately I’ve been cutting that margin to 16% on real good deals. On bigger deals or on deals that feel a little more risky I stay firm with the 20%. I wouldn’t go much lower than 16%.
Historically homes sell on average for something around 8% less than asking price. If you’re only pricing in a 10% profit then you might end up just doing a practice flip. A practice flip is a deal where you don’t make any money. Essentially you donate all of your time and effort for free to the end home buyer. The other 6% is the number I put in for closing costs when I sell the home. I’m a licensed Realtor so I list the home myself, which will save me a little. So in my case, 4% goes to Realtor fees and the other 2% is what I budget for other closing costs. You can choose to try to sell the home yourself and save the Realtor commission. If you are not a Realtor and you plan on hiring a Realtor then you probably will need to budget 6% for the Realtor fees plus another 2-3% for closing costs. I always anticipate having to pay some of my buyers closing costs.
A couple of years ago, I was talking to a customer for my property management software who was based in Ulan Bator, Mongolia. “Mongolia!” I said. “Holy cow! Why are you investing out there?”
Let me pass along a story that has extreme relevance to our current real estate picture. It involves dolphins in the Gulf of Mexico and their feeding by well meaning – although some would say misguided – people called tourists.
This is Part 2 in the Residential Land Development series showing you how to find, price, and develop land for residential single family property.
You’re sitting down to write a property listing. You know my first rule of marketing: Make it personal. But how do you do that – and stay within Fair Housing guidelines?
As a real estate investor, you are a marketer first. Your success hinges on your ability to effectively market your business. Regardless of your specialty, you may use some of the well-known, effective marketing methods. These methods include, but are not limited to; bandit signs, newspaper classifieds, yellow pages, billboards, business cards, radio, television. The effectiveness of these methods vary per market, per design, per marketing-message, etcetera. You need to analyze and conclude what works best for you.
Joshua Dorkin
Are You RICH or Are You POOR?
by J. Lamar Ferren | October 17, 2009Are you RICH or are you POOR?
For as he thinketh in his heart, so is he. ~ Proverbs 23:7
It’s a question that many people don’t think about that could truly shed some light on why people are where they are in life. The answer isn’t as simple as it seems.
Knowing if your RICH or POOR upfront is a direct reflection of your success in life.