Evaluating your deals before you buy them is crucial to the success of any real estate investing business.
It is therefore important to learn how to evaluate your deals no matter what your business model is.
The article teaches you tips of evaluating your deals so you make offers that make you money.
Obviously your business model dictates how you evaluate your deals.
So in this article we will look at some general scenarios which should be a rough guide as to how you make your offers.
Let us take each business model at a time:
1) Wholesale real estate investing
The general rules for buying a property you are going to flip to other real estate investors is 65 cents on the dollar minus repair costs minus your profit.
In other words when you flip a property to another real estate investor, you must make sure there is enough profit in it for them, or they will not be interested in buying it.
Secondly, you must take your profit into consideration. The money you make after you sell it must be taken into consideration before you buy it. Otherwise there will be nothing for you or cannot even flip it if nobody is interested in buying it.
I prefer to go below 65% of after repaired value in a poor market. 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 properties at a discount when the market is poor, I still recommend you use the formula for wholesale real estate investing.
3) Subject to’s and lease to own real estate investing
You can afford to buy properties at a higher price when taking over payments.
Some people will argue you can still make money with not equity; however, my best advice is to stay out of it.
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.
Cashing out means your lease to own buyer refinances and owns the property.
The price when your lease to own buyer refinances must therefore be acceptable by lenders.
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.
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. Of course this is assuming there are no repairs needed.
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