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Real Estate Investing Basics safety first

Some of these mistakes have cost me wasted time, wasted money, loss of a potential investment home, and even losing a very good friend by mixing business and friendship. All this I can learn and bounce back from. What I can not live with is if my actions caused anyone else to suffer or be hurt due to my negligence. This holiday season remember the advice below as we cover some very important home tragedy prevention tips.

Flipping Houses & Rehabbing

Every once in a while I catch an episode of Flip this House; I have to admit, it is entertaining and it does show the drama involved in fixing up a home. However, I am very amused when they show the final numbers. I have watched episodes where a first time rehabber has bumbled and stumbled through the process and yet still manages to make a profit in the end, according to the show. This and other shows might make one believe that a flip is a sure bet. When they do the numbers they normally list the Purchase price, the fix up costs, and the sales price. Wow, are they missing a bunch of stuff.

Please take my advice: Do NOT start that flip if those are the only categories of expenses that you are anticipating.

The REAL Costs of Flipping a House

Here are the actual costs of one of my recent flips.

real costs to flip a housePurchase Price:
Contract Prices: $213,000
Wholesaler: $12,937
Total Price: $225,937

*This deal was brought to me by a wholesaler. So my purchase price consisted of both the amount that I paid the owner (in this case a bank) and the finder’s fee that I paid the wholesaler.

Costs of Money:
3 Points: $7,312.50
Broker Fee: $2,437.50
Holding Costs: $9,500.00
Lender’s Lawyer: $1,220.00
Total Costs: $20,470.00

The cost of money or the cost of capital to me is everything that the lender charges for the use of his money. Note that in this case (which is pretty standard) I paid the lender 3 points and I paid the broker 1 point. Note that there is also a lawyer; this lawyer is not the title company. This is the lenders lawyer who writes up the contracts and the deed. He’s the one who does his very best to shackle me to ensure his client gets his money back. The lawyer represents me in no way at all, but I get the privilege of paying for his services. Most hard money lenders will either have this fee or some sort of administrative fee of about the same price.

Market Trends, News & Commentary

I realize I am not the only guy on this planet who reads the “news” as presented both in the newspapers and on the Internet. Even if I didn’t read the news, I’d get a good dose of what people are calling reality. That dose comes from the mix of clients our insurance agency serves. Lucky me…

Here are two sentences taken from two separate news stories:

“The coffers of the Federal Deposit Insurance Corp. have been so depleted by the epidemic of collapsing financial institutions that analysts warn it could sink into the red by the end of this year.” – AP

“Pending U.S. home sales rose more than expected in July to the highest level in more than two years as first-time buyers rushed to take advantage of a tax credit that expires this fall.” – AP

Is it me or are these two sentences sending conflicting messages. If it is me, I apologize upfront. However, I don’t think it is me.

Failure Ahead

According to published reports, so far this year, 81 banks have failed. Last year only 25 went down the toilet while in 2007, if you’re counting, only three went south. These same sources project hundreds of more banks are expected to fall. The primary reason given is due to souring loans for commercial real estate.

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