How To Evaluate Real Estate Investing
In order to make profits in real estate investing, it is necessary to evaluate your deals before you buy houses to make sure you will make a profit.
No matter what your business model is, you must therefore learn how to evaluate your deals.
This article walks you through some tips that will help you make offers that get accepted at the same time offers that make you a profit.
Obviously your business model dictates how you evaluate your deals.
These scenarios should act as a general guide.
Let us take each business model at a time:
1) Wholesale real estate investing
When buying properties to flip to other real estate investors, the general rule is to buy at 65 cents on the dollar minus repair costs minus your profit.
In other words you must leave enough money on the table for your real estate buyer or nobody will be interested in it.
You must also factor your profit into it. This means that your profit after you flip the deal must be taken into consideration before you buy. Otherwise you will not make any money or you will be unable to flip it because it will not have any profit potential for the real estate investor.
In the current low real estate market, I prefer to go below 65%. The lower you can get it the better.
2) Buy fix and sell
This works like wholesale real estate investing, without thinking about flipping profit.
Since you sell these properties in a downward market, I would recommend you use the formula for wholesale real estate investing.
3) Subject to's and lease to own real estate investing
When taking over payments, you have more flexibility and can afford to buy the properties at a higher price.
Do not be tempted by deals that have no immediate equity even though some people may argue you can still make money.
When you take over payments, the perfect scenario is when you make money when you acquire the property, get a positive cash flow each month and cash out with a big pay day.
The final cash out comes when your lease to own buyer refinances and owns the house.
Therefore it follows that your lease to own buyer should be able to refinance at an acceptable price that lenders can accommodate.
In a downward real estate market, you must therefore buy houses with equity. If the market goes down, this equity will shield you.
More so, these properties should not require repairs and should have at least 25% equity.
4) Rentals
The general rule of thumb for rentals is that your buying price divided by your yearly rent is less than 10. The less the better. This is assuming that the houses do not need repairs.
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