How To Identify A Good Deal For Real Estate Investing
We are in a real estate market that continues getting worse and house prices that continue going down. More and more people need to sell their houses or lose them to an already saturated market.
This trend is likely to continue in the foreseeable future, meaning the prices of most houses will be less tomorrow that they are today.
So how can you make sure you are safe as a real estate investor so that the house you buy today makes you a profit tomorrow?
Most home owners looking to sell their houses now understand that the value of their house is quite unstable.
They do realize that prices continue to go down, and that their house may not be worth what it was just two months ago.
They also understand that everyone now buys houses below market value.
There are so many houses sitting out there that you are almost guaranteed to successfully negotiate your price down, even if the asking price is already well below market value.
Motivated sellers therefore know that even though they think they are giving you a discount, you must also give a discount when you sell the property.
for instance, you could end up holding a property for six months if you buy, fix and sell.
How much value will the house lose in this time?
If you do not answer this question before you buy, you are likely to end up paying too much for your properties.
If your business model is to wholesale houses, you still need to answer this question. How much will your buyer need to discount the property when they sell? After all, if you do not leave enough money in the deal for your wholesale buyer to make money, you cannot sell a property as a wholesale deal.
It used to be that buying properties at seventy cents on the dollar minus repairs was good enough. I believe some real estate investors are still using these numbers. 60% minus repairs is barely enough to get you by in the current market.
If you fix them and hold them as rentals, these numbers could work perfectly for you.
If you fix properties to sell them on retail, then your numbers must cater for long holding costs and associated price drop. Do not forget you will have to give a discount when you sell.
When you sell, giving a discount of 15% to 20% is not uncommon. Will that be enough to leave a profit for you?
Motivated sellers do understand these things. Of course, the discounted dollar figures they give you might look big. As a real estate investor, you need to work with percentages, not dollar figures.
I explain the numbers as percentages and it easy for them to see that margin is really quite small. Once they realize you are not taking advantage of them, they will sell their house to you at a price that makes you a profit.