This is something that will take a bit of time to perfect as you continue to learn how to do your real estate investing business but so necessary! The MORE you evaluate deals, the BETTER you will get. First, you want to have a general idea of the market in that area, and looking at FSBO’s (For Sale By Owners) while you farm, as well as those listed by Real Estate Agents will give you a decent idea of the values of properties, but be careful, the listings could be at the high end of the market, and have no bearing on what the true price of the property should be. Same goes with FSBO’s…typically Owners that are trying to sell it without listing it are trying to get top dollar for their property, and don’t want to pay commissions, so there’s even more of a chance at buying it too high. You’ll have MUCH better luck if you’re dealing with a motivated seller.
Now, there are a few more factors that come into play when you’re evaluating deals. One is what you’re going to do with the property. If you’re buying it to hold yourself (something I highly recommend), then the numbers are different then if you are buying it to wholesale to someone else. The “typical” rule has always been to offer70% of the A.R.V. (After Repaired Value) and subtract holding costs, listing costs, repairs, closing costs, buy your wife a new pair of shoes costs, and on and on….then subtracting what you will make. At least that’s what is used a lot of times for wholesaling.
If you’re buying to hold, you can typically give a bit more for the property than you can when wholesaling, because typically you want the numbers to work out to where you make a profit every month. And making a profit doesn’t mean that you forget to include taxes, insurance, and maintenance, as well as a vacancy factor. Forget to include those figures,and you will be done investing before you even start. When you’re wholesaling, you have to go lower so you can collect your fee.
Probably the number one reason that I have seen most investors fail is that they don’t work the numbers correctly, so you’ve really got to do your due diligence before you jump in. This is even more true if you’re buying to hold. On the other hand, I have even seen investors that have made a fortune even though they have screwed things up. Heck, my first deal, I screwed tons of stuff up and still made $5k. I’ve seen investors that figure too low on repairs, and then figure too high on the After Repaired Value, and then things don’t work out right and they are out of business before they even begin.
Lots of investors wait to get started until everything is “perfect”. If you wait for everything to be in perfect alignment, you won’t do a thing. So,that’s why in my opinion, Wholesaling is the best way to start before things are “perfect” where you’re not risking losing your butt, but you can still make money and gain knowledge. Know that the fact of the matter is that YOU WILL MESS UP & YOU WILL GET THINGS WRONG! Sorry if I’m the bearer of bad news, but guess what, that’s part of the learning process. So, be prepared to be wrong, but stack your bets to your advantage, and if you’re brand new at this, start off wholesaling because it’s a lot less risky than buying to hold when starting out. But don’t hang in that realm too long. Otherwise you’ll be missing out on the BIG picture of Real Estate Investing! That’s something that I’ve seen way too often! Investors that finally do a wholesale deal, will neglect to spread their wings and continue to learn and build
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