In real estate investing, buy low sell high is a very common expression. Though it sounds quite obvious, it is not always easy to buy houses at the right price.
Your buying price must be low enough to make you profits whether you sell them right away or keep them as cash flow properties.
So how do you determine the best price for your property?
A few years ago, it was not un-usual to buy a house at 80 cents on the dollar and wholesale it for a tidy profit because the market supported it. In fact, you always expected the price of the house to go up within a few months.
In the current market, when you buy a house, you expect the price to go down. Almost every home owner has lost some equity in the home in the last one year.
When buying a house, you must consider this fact. Today, the regular price for wholesale properties is 60 to 65 cents on the dollar minus repairs.
Also, tenants have become more choosy since there are more houses to chose from, and are likely to go for a house with a pristine rehab job.
This has made rental prices more competitive.
When you are buying houses, it is necessary to make sure you let the seller know these facts.
So I always let a seller know that even though it seems like they are giving me a deep discount on their property, I have to fix it, then sell it, probably hold it for months and eventually sell it at a deep discount.
And probably I’ll not be able to sell it at all!
I explain that I might lose most of my profits when I hold it. When most sellers understand these facts, most of them relax.
I like to make this clear before I can make an offer. I have come to learn that even though motivated sellers really need to get rid of their properties, they do not like to feel like they are being taken advantage of.
Once they understand the current market conditions, then I can make my offer – and it offer does not look too low-ball and the seller is likely to accept it.
Why do you need to explain all this?
In the current market, it means you must buy houses much cheaper than we used to just a few years ago since you also must sell low in order to sell it at all.
If you buy properties on terms such as lease options, it is also necessary to do this. You must remember that even though the price for properties that you buy on terms is usually higher, it must still be low enough to cater for the facts above.
This way, in a year or two when you try to sell it, the price at that price will support the sale.
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