When you’re flipping houses, it’s critical to be able to evaluate deals quickly and effectively.
One of the most important characteristics of successful real estate investors is their ability to take fast – and massive – action. And the one thing that holds people back in real estate is FEAR of taking the wrong action! In the next step, I’ll cover how to create RISK FREE contracts 100% of the time that actually get accepted, so no worries there… but for now, understand that you have to be able to quickly evaluate deals or else someone else is going to snatch up all the really good deals before you have a fighting chance.
So, for right now, I’m going to cover the discount property analysis. You need to know: (1) What it’s worth in TODAY’S MARKET, (2) What it “needs”, or repair and holding costs, (3) How much you can get it for!
Too many people focus ONLY on #1 and #3. They find a deal that’s worth $150,000 and get it under contract for $120,000 and try to sell it to another investor, claiming there’s $25,000 in profit (after the wholesaler’s $5000 assignment fee). Sorry, folks, this deal is PROBABLY upside down… You need to look at ALL of the costs associate with holding and repairs. Now, if you’re buyer is a retail buyer or a hybrid buyer, there may be a little bit of wiggle room… But nonetheless, you need to get used to THIS MODEL of evaluation and use it every time. I created a simple spreadsheet and you can do the same or you can check ours out at www.FixingAndFlipping.com where I go into this evaluation and analysis process in great detail.
Here’s an example of my personal spreadsheet and what I cover in each section of it:
Purchase Price: What I can get it for (Max Offer)
Buying Costs: How much will it cost me (or the ultimate buyer) to actually close the deal. You’ve got title, attorneys fees, closing costs, taxes, etc.
Carrying Costs: Will the buyer be using cash, hard money, conventional financing, etc. How much will it cost to repair? And don’t forget utilities, taxes and insurance which could be $100s per month.
Selling Costs: Will there be commissions paid? How about seller concessions? Closing costs, taxes, etc.?
Profits: This is where you find out how much meat is REALLY on the table… And if you can make the deal work for you and your buyer!
This is a quick and easy model to follow and will ensure that you fully evaluate all of your deals before sending them off to buyers. And when you’ve done this, you’ll be able to negotiate better with the sellers and ultimately put more money in your pocket and have buyers flocking to you to get hold of YOUR DEALS…
Again, you can visit www.FixingandFlipping.com to watch a quick video on using this method, calculating costs and figuring out what’s really in the deal!