If you been in the real estate investing business, or more specifically been
flipping real estate, for more than a few days, you've inevitably gotten an
email that reads something like this:
"Investor's Dream. This property will go QUICK.
- Property Address: 1234 Main Street
- Asking Price: $100,000 (Add or subtract zeros!)
- After Repair Value: $150,000
- Repairs: $15,000
- Profit: $35,000
- Details: Needs paint, carpet, tile, new kitchen, update bathroom, some
roof damage.
- Tenant occupied. Need to evict!"
STOP! Before you read on... Take a guess at what you think the "real"
profit's going to be on this real estate investment...
If you haven't ever gotten an email or fax broadcast like this, then rest
assured, you will! I'm about to probably tick off all of the late night
infomercials and pitchmen out there! Sure, I understand that when you've got 30
minutes (or 90 minutes, for that matter), that you've to sell what's sexy... not
what's real!
Now it's my turn to expose the real deal on real estate investing! This goes for
flipping real estate itself (i.e. properties) or simply flipping the contract
(also known as assigning the contract). When you're flipping real estate, you
need to be able to calculate the "real" bottom line and if your
assigning the contract, you need to know your numbers so you don't get
blacklisted from investors! This one piece of information will keep you from
getting into trouble because of any "real estate bubble"!
Purchase Costs
Here goes... Have you EVER purchased and sold a piece of real estate for FREE?
If you're not sure what the answer is... It's an emphatic NO... You are going to
have costs to buy, costs to hold and costs to sell. This holds true even if you
are buying a property for all cash. (Think title fees, attorney's fees,
recording fees, etc.)
If you're not getting a mortgage, your purchase costs are obviously much lower,
but nonetheless, there are costs associated with any real estate transaction.
Plus, more than likely, if you're relatively new, you're probably not paying all
cash for property anyways. You're probably going to be using a hard money
investor for your initial real estate investing financing!
For a quick calculation, you can estimate anywhere between 3% - 5% for closing
costs to just acquire the property. That's 3%-5% of the purchase price.
Holding Costs
How much is it going to cost you each and every day to own this piece of real
estate? See, if you're making money in real estate, you'd better believe that
there are a lot of other people that are going to expect to get paid and they
get paid in the form of mortgage interest, property taxes, utilities, property
insurance, etc. Each of these is an expense each and every day that you own the
property. Here's an example... A hard money loan on a bread and butter type
piece of real estate might run you 15%. Let's say you got the property for
$100,000. Every month, you are paying $1250 in interest alone. Let's say that
taxes and insurance are another $200/month and then utilities at $100. Right
there, the property is costing you $1550/month - or roughly $50/day. See, why
it's important to know your not only your holding costs on a real estate
investment, but also how long it's going to be on the market before you can flip
the property.
Selling Costs
Here's the third part of the real estate investing puzzle. When you want to turn
around and sell this piece of real estate, it's going to cost you yet again! Are
you going to use a real estate agent and pay a commission or 3-4-5% or even
more? On $150,000, that's anywhere from $4500 to $7500 chopped of the top. Then,
you can figure 1-2% in closing fees.
If you can remember this... and apply what you've just learned to each and every
real estate deal that you do, you'll be safe flipping real estate in any market.
You see, if it's a hot market, you can calculate less time for holding cost.
But, in a slower market, make your offer based on 6 months or 9 months of
holding costs. It's really simple math! And real estate really is a numbers
game...
Recommended Resources:
Finding Deals: www.motivatedsellermarketing.com
Estimating Repairs: www.fixingandflipping.com
Finding Contractors: www.servicemagic.com
Author Bio
Heather Seitz, the co-creator of Fixing and Flipping software, takes the
guesswork out of estimating repairs. Learn how to estimate repairs and calculate
profits in seconds. Click below for your free video and mini-course: www.fixingandflipping.com
Article Source: http://www.ArticleGeek.com
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