BUYING AN INVESTMENT HOUSE
The basic rule of thumb that is quoted by most real estate people is you must buy the house for 70% of the retail value.
It is my rule of thumb, and I am not a real estate professional, is you must buy it for 50% of the retail value or LESS. I know people who do this on a regular basis.
Where do you find these deals? They are listed on the MLS. This can usually be accessed on the computer by going to your county name/MLS.com. There the price range, number of bedrooms, bath, garage, pool, etc. can be entered in the appropriate boxes and, click, a list of homes will appear.
As an investor there are two boxes to be filled in. One is ‘foreclosure’ and the second is ‘bank owned’. These sellers are motivated and will almost always sell for less than the listed price.
The first offer should be no more than 25% of the listed price. That offer is made through the listing real estate broker. The more contingencies in the offer the less chance the offer will be accepted. If a cash offer can be made it has a very good chance of a counter offer at a much lower price, especially if it is bank owned property. If you can’t steal it don’t buy it.
Banks don’t want to own real estate. They are in the money business not the property business. Every bank has a Real Estate Division. I don’t know of any who will sell directly to an individual. They must list with a broker. Find out who is their preferred REO realtor and contact him.
People think if the price is cheap the broker won’t care about selling as the commission will be small. Wrong. Banks make special commissions on cheap properties, even those selling for less than $25,000, so the broker is motivated to help the investor get the deal done.
The investor must do his due diligence on the property. Does it need repair and what will it cost to put it in rentable or resalable condition? Instead of using a home inspector have a certified contractor go through the house to give an estimate of cost and time to get the job done.
Here is a short list of expenses. 1 to 2% for closing costs; 2 to 5% if there is to be a loan; 2 to 15% for interest, insurance, utilities, taxes until the home is sold; 2 to 8% for closing costs and broker commission when sold.
If the investor has a source for the cash to do the deal some of these costs will not appear or be less. The lower price homes will turn over quicker and will also rent for more positive cash flow.
The due diligence will have checked out recent homes in the neighborhood for both sales and rentals prices. The more that can be chopped off the listing price the more profit in the deal.
Al Thomas’ new book, “If It Doesn’t Go Up, Don’t Buy It!”, 3rd edition, has helped thousands of people make money and keep their profits with his simple 2-step method.
The method made 10% during 2008. Read the first chapter at www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.
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