To be successful in real estate investing, you must but low and sell high in your real estate deals. Specifically, you need to buy houses with equity. Generally this applies to all real estate investing business models.

So how do you know that a house has enough equity to make a profit for you?

When I bought my very first real estate investing deal, I simply gambled with numbers. At the time, the real estate market was such that all properties appreciated with time, so you could still make a profit even with marginal deals.

I did not think my effort justified the little money I made at the end of the day, so I almost gave up pursuing more deals. The numbers had looked so good I did not think there was any way I could lose.

Let us take an example:

Suppose you are buying a $200,000 house for $160,000. At first glance, it may seem to you like you have an equity of $40,000.

Let us take a deeper look at these numbers.

We will assume the house just needs a new carpet and paint plus a few touch-ups before you can sell it. Your monthly mortgage payment will be $1300.

We will assume that you will complete repairs within 30 days, and that houses are sitting an average of 90 days on the market before you can sell them.

Your numbers will look something like this:

1) Holding costs for 4 months: $5200
2) 2% closing costs when buying at $160,000: $3200
3) 2% closing costs when selling at $200,000: $4000
4) 6% Realtor’s commissions when selling the house: $12,000
5) Carpet, paint and minor touch-ups: $10,000
6) Property taxes prorated for 4 months (approximate): $1050

This is a total of $35,450 assuming nothing goes wrong.

In other words, your total expense in this deal is $160,000 plus $35,450, or $195,450.

This is a meager profit of $4550!

If anything goes wrong and you end up spending more in repairs, or it takes two more months before you can sell it, you are end up making a loss in the deal.

Scenarios like these are very common with real estate investors.

You should only work with numbers are PERCENTAGES not dollar figures.

As a wholesale rear estate investor, I acquire my properties at 65% minus repairs or lower.

Remember you also need to sell your properties at a discount to get them sold.

In order to get noticed, your house also needs to be quite attractive both in the asking price and overall condition. Buyers today are more picky because they have more houses to choose from.

You might therefore have to spend more on repairs to make them more appealing.

You must also remember that the holding costs could be much higher because it can take as much as 6 months or more to sell a perfect looking house.

You are more likely to remain profitable in your real estate investing business if you work with percentages that give you a good return on investment for your business model.

Successful investing in real estate requires that you acquire your deals cheaply and sustain a continuos flow of good deals that make you a profit. Learn how an automated, interactive real estate investing website can help you acquire more deals using less time, money and effort.