I’m very new to real estate and investing and want to know what are realistic examples and expectations when it comes to buying, fixing the renting out or selling a home and what does the profit look like.
Erica, that’s a great question and one every new investor should ask before jumping in. The truth is, profits depend a lot on your market, your deal, and how well you manage the numbers. A good flip might bring in 10 to 20 percent profit after all costs, while a rental can earn you steady monthly cash flow plus long-term equity growth.
Start by focusing on learning how to analyze deals like what the property will cost, what repairs will run, and what it will sell or rent for when finished. The more accurate your estimates, the safer your investment. What’s in it for you is building a clear picture of how money really moves in real estate so you can make smart choices instead of guesses. Once you get your first deal right, the next ones become a lot easier.
Erica, that’s a great question and one every new investor should ask before jumping in. The truth is, profits depend a lot on your market, your deal, and how well you manage the numbers. A good flip might bring in 10 to 20 percent profit after all costs, while a rental can earn you steady monthly cash flow plus long-term equity growth.
Start by focusing on learning how to analyze deals like what the property will cost, what repairs will run, and what it will sell or rent for when finished. The more accurate your estimates, the safer your investment. What’s in it for you is building a clear picture of how money really moves in real estate so you can make smart choices instead of guesses. Once you get your first deal right, the next ones become a lot easier.
Additionally, the deal will depend a lot on the people participating in the deal beyond yourself. Your lender needs to put together a financial package that doesn't put you and the deal at a disadvantage, ie. points, origination fee, interest, draw fees. These are important financials that will impact a good deal. Your general contractor is critical to cost and schedule because time is really money on a rehab. And your realtor needs to have good knowledge of the market, area and trends. I usually bring them in early to gauge the opportunity because they are a big part of the exit. In essence, build good relationships to support a good deal. Just my 2 cents...
Hey Erica, I love fix-n-flip as the duration is short and the profits can be high. If my project is a simple rehab - cosmetics or paint, flooring and etc. 1 month - I look for profit margins of 20% or so. It the project is more extensive - fire or structural damage, systems updating, cosmetic and more 3 months of work - I look for at least a 30% return on investment.
When purchasing a property, I always start with the ARV (after repair value) based on sold and settled sales and work back to the "as is" value that I will pay for a property. After taking out all estimated settlement costs, carrying costs, profit expectations, rehab costs w/contingency the number at the end is what I can pay for the "shell". All sellers think that they are sitting on gold, but mostly they don't want to do the extensive and skilled work to rehab a property, so don't be afraid to bring them to reality with realistic offer. If not accepted just sit and wait. Maybe some other sucker will pony up but more than likely they will not and you may get the property.
Most importantly is don't leave out any rehab or repair costs. These can really destroy you returns. Have a really detailed and realistic budget and know that costs generally do not go down but do go up. Good luck.
In the Midwest, in this market, it is pretty difficult to buy, renovate and long term rent a single family house at a profit or even a positive cash flow. But, most buyers do not have much in the way of vision (visual appeal after renovation) or in the way of calculating costs accurately. Further, buyers who try to finance a property with a lot of work needed like mechanical, electrical or structural repairs find the lenders will not cooperate. Oh, they might allow a few small post closing repairs with escrowed lender funds but anything major and they are looking at construction financing which they cannot do.