Making Sure You Profit

Making Sure You Profit

Rentals, fix and flips and wholesaling are great ways to make significant amount of money. But many times new investors and even experienced ones stumble on a property and fall short from making a significant profit and even loose money. The numbers behind a property should never be taken lightly because anything could happen through out the process, but you shouldn’t worry if you have it all planned out to your price range. There are many factors to keep into consideration before investing in a home:

 

Evaluate the area

By area, I mean street, neighborhood, subdivision and up to the zip code. You always want to know the kind of homes that surround the area, the advantages and disadvantages of living there and price ranges. The reason is that once you start to fix the home you should have it turn out to be similar in price range and appearance, it would be a bad move to make it more expensive than all the other homes in the area. For example, lets says a neighborhood price range is $100,000. An investor buys for $75,000 and then spends $20,000 to fix it. If he sells for $100,000 then there is no room for profit because of realtor costs and other fees. So the investor decides to sell at $130,000. The property stays up for sale for more than 6 months because the price is high compared to the others; meanwhile the investor is loosing money because of monthly fees. The turn out is that they end up selling the home for much less, $112,000. After the monthly fees, commission costs, maintenance fees…etc he ends up loosing more money than if he would have just sold for $100,000. Watch out for price ranges and don’t go above your budget.

 

The Property

To be on the safe side, a quick equation to always keep in mind is:

 

ARV (after repair value) – (Purchase + Renovations + Holding Costs + Realtor Fees) = Profit

 

When looking through a home it is helpful to divide your repair costs into two sections. Major repairs and minor repairs. Minors include painting, doors, fixtures, carpet, trim…etc. Major repairs are windows, kitchen cabinets, foundation repair, plumbing, granite tops, hardwood flooring…etc. Once you know an estimate on your repair costs including labor costs, it is good to have an extra 10%-15% of repair costs on the side incase you get any surprises. Also, its helpful to have a realtor on your team in order to get the full scope of the after repair value and see images of recently sold homes to get a better idea of what your investment home should look like. Remember to always keep in mind what you will be doing with the property, if you will be selling, renting or even wholesaling, its crucial to know before you start working on it.

 

Income

Based on your strategy and other calculations including routine maintenance, property taxes, advertising or utilities, you should be able to come up with an income report. It will always vary depending on your strategy but most importantly is that you should estimate a profit. If you keep seeing no profit in the report then it means you should not invest in the property or you need to negotiate a lower price until you can see a profit. No matter what you should always make a clear-cut report of your total costs and potential profits to keep you safe from seeing money go down the drain.

Rentals, fix and flips and wholesaling are great ways to make significant amount of money. But many times new investors and even experienced ones stumble on a property and fall short from making a significant profit and even loose money. The numbers behind a property should never be taken lightly because anything could happen through out the process, but you shouldn’t worry if you have it all planned out to your price range. There are many factors to keep into consideration before investing in a home:

 

Evaluate the area

By area, I mean street, neighborhood, subdivision and up to the zip code. You always want to know the kind of homes that surround the area, the advantages and disadvantages of living there and price ranges. The reason is that once you start to fix the home you should have it turn out to be similar in price range and appearance, it would be a bad move to make it more expensive than all the other homes in the area. For example, lets says a neighborhood price range is $100,000. An investor buys for $75,000 and then spends $20,000 to fix it. If he sells for $100,000 then there is no room for profit because of realtor costs and other fees. So the investor decides to sell at $130,000. The property stays up for sale for more than 6 months because the price is high compared to the others; meanwhile the investor is loosing money because of monthly fees. The turn out is that they end up selling the home for much less, $112,000. After the monthly fees, commission costs, maintenance fees…etc he ends up loosing more money than if he would have just sold for $100,000. Watch out for price ranges and don’t go above your budget.

 

The Property

To be on the safe side, a quick equation to always keep in mind is:

 

ARV (after repair value) – (Purchase + Renovations + Holding Costs + Realtor Fees) = Profit

 

When looking through a home it is helpful to divide your repair costs into two sections. Major repairs and minor repairs. Minors include painting, doors, fixtures, carpet, trim…etc. Major repairs are windows, kitchen cabinets, foundation repair, plumbing, granite tops, hardwood flooring…etc. Once you know an estimate on your repair costs including labor costs, it is good to have an extra 10%-15% of repair costs on the side incase you get any surprises. Also, its helpful to have a realtor on your team in order to get the full scope of the after repair value and see images of recently sold homes to get a better idea of what your investment home should look like. Remember to always keep in mind what you will be doing with the property, if you will be selling, renting or even wholesaling, its crucial to know before you start working on it.

 

Income

Based on your strategy and other calculations including routine maintenance, property taxes, advertising or utilities, you should be able to come up with an income report. It will always vary depending on your strategy but most importantly is that you should estimate a profit. If you keep seeing no profit in the report then it means you should not invest in the property or you need to negotiate a lower price until you can see a profit. No matter what you should always make a clear-cut report of your total costs and potential profits to keep you safe from seeing money go down the drain.