The current real estate market continues to deteriorate and house prices continue to go down. More and more people need to sell their houses or lose them to an already saturated market.
We are likely to continue seeing this trend for a while, which means house prices will continue going down.
So how do you identify a good deal that will hold its value until you sell?
Most home owners looking to sell their houses now understand that the value of their house is quite unstable.
They understand that their houses are losing value every day, and that they cannot rely on prices just 2 months old.
They also know that they can no longer sell their house at market value any more.
Too many houses are sitting in the market that you can almost certainly negotiate the price down on most properties even if the asking price is well below market value.
Motivated sellers know that you must also give a discount when you sell your properties, so they do understand the discount they give you will be passed on.
If you buy, fix and sell for instances, you can end up holding your houses for as long as 6 months.
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 investment properties.
Even if you wholesale houses, you still need to answer this question. How much will your buyer need to discount the property when they sell? As a general rule, you can only wholesale houses if you leave enough money for the wholesale buyer to make money also.
Lots of investors have previously been quite comfortable buying houses at 70 cents on the dollar less repairs. Some real estate investors still use these numbers. In this market, 60% minus repairs is barely enough.
If you buy properties to hold as rentals, then these numbers can work perfectly.
If you fix properties to sell them on retail, then your numbers must cater for long holding costs and associated price drop. Naturally you should cater for the discount you will give when you sell!
These days, a discount of as much as 15% to 20% is not uncommon. Is that enough to make you a profit?
Motivated sellers understand this quite perfectly, and I find it easy to use it to negotiate my prices. Of course, the discounted dollar figures they give you might look big. Any good real estate investor knows that we work with percentages, not dollar figures.
Once I explain my numbers in percentages, they can easily see how it small my margin really is. 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.
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