As a real estate investor, you can only make profits if you evaluate your deals properly to make a profit.
It is therefore important to learn how to evaluate your deals no matter what your business model is.
This article walks you through some tips that will help you make offers that get accepted at the same time offers that make you a profit.
Obviously the way you evaluate your deals depends on your business model.
Here are some scenarios which should act as a general guide.
Let us take each business model at a time:
1)Wholesale real estate investing
When buying properties to flip to other real estate investors, the general rule is to buy at 65 cents on the dollar minus repair costs minus your profit.
This means that to flip a property to another real estate investor, there must be enough money for them or they will not even look at it.
Secondly, you must take your profit into consideration. This means that your profit after you flip the deal must be taken into consideration before you buy. 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
You can compare this to wholesale real estate investing, without catering for your profit after you flip it.
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.
Even though some people will argue you can still make money even when there is no equity, I highly recommend you do not take this route.
The perfect scenario is the one where you make some money when you find a lease to own buyer, get a positive cash flow and finally end up with a big payday when you cash it out.
You normally cash out when the lease to own buyer refinances and owns the house.
The price when your lease to own buyer refinances must therefore be acceptable by lenders.
In the current market that seems to be going down, it is therefore necessary to make sure you still have equity when you buy the house. This will cushion you if the market goes down.
I highly recommend that these properties should not require repairs and have at least 25% equity or more.
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. This assumes no repairs are needed.