How To Buy Houses With Equity In Real Estate Investing
To be successful in real estate investing, you must but low and sell high in your real estate deals. Specifically, you need to buy houses with equity. You will find this rule applies to all business models in real estate investing.
So how do you calculate equity to remain profitable in your real estate investing business?
When I bought my very first real estate investing deal, I simply gambled with numbers. At the time, all properties appreciated in value over time, so you could always make money even with deals that did not look so good.
To be successful in real estate investing, you must but low and sell high in your real estate deals. Specifically, you need to buy houses with equity. You will find this rule applies to all business models in real estate investing.
So how do you calculate equity to remain profitable in your real estate investing business?
When I bought my very first real estate investing deal, I simply gambled with numbers. At the time, all properties appreciated in value over time, so you could always make money even with deals that did not look so good.
I did not think my effort justified the little money I made at the end of the day, so I almost gave up pursuing more deals. The numbers had looked so good I did not think there was any way I could lose.
Let us take an example:
Let us assume you are buying a $200,000 house for $160,000. At first it might look like you have an instant equity of $40,000.
But let us look more closely at these numbers.
Assume that you just need to replace the carpet and repaint the house, plus a few minor touch-ups. Your monthly mortgage payment will be $1300.
Let us assume that you will fix it within 30 days, and that the average time on the market before you can sell it is 90 days.
This is how the numbers would look like:
1) Holding costs for 4 months: $5200
2) 2% closing costs when buying at $160,000: $3200
3) 2% closing costs when selling at $200,000: $4000
4) 6% Realtor's commissions when selling the house: $12,000
5) Carpet, paint and minor touch-ups: $10,000
6) Property taxes prorated for 4 months (approximate): $1050
This is a total of $35,450 assuming nothing goes wrong.
In other words, your total expense in this deal is $160,000 plus $35,450, or $195,450.
This is a meager profit of $4550!
If anything goes wrong, such as spending a little more in repairs or it takes 2 more months before you can sell it, you will end up making a loss.
Deals like this are quite common with a lot of real estate investors.
When you do your numbers, you must use PERCENTAGES instead of dollar figures.
I acquire my wholesale deals at 65% minus repairs or lower.
Remember you also need to sell your properties at a discount to get them sold.
Also remember that because there are too many houses sitting in the market, your house must be really good both in the selling price and the overall condition to get noticed. Since buyers have more houses to choose from, they have become more picky.
This means you may have to spend more money on repairs to make it more appealing to buyers.
You could end up holding the house as long as 6 months, increasing your holding costs.
As long as you stick to a percentage that gives you a good return on investment for your business model, you are likely to remain profitable in your real estate investing business.
Successful investing in real estate requires that you acquire your deals cheaply and sustain a continuos flow of good deals that make you a profit. Learn how an automated, interactive real estate investing website can help you acquire more deals using less time, money and effort.
So are you still looking at 65% below market price in this economy?