Where
Are The Really Good Real Estate Investment Deals?
By
Bruce Ford
In
writing my last article about the neighborhoods where I find the most
profitable rehab real estate investment deals, something occurred to me.
In
that article I described investing from what I've found is typical in
doing this business. I wrote about where I TYPICALLY find the deals. Well,
what IS typical in this business?
No
two deals are the same, that's for sure! Every rehab itself is different
with different problems to solve. So, in describing a typical deal, I'm
referring to the spread involved. The spread is the different between
what I can buy the house for, and what it's value will be when it's brought
back up to standards.
The
next big question is, "What will the rehab going to cost."
For
instance, if a property in my market has a $25,000 spread between what
I can buy it for and what I can sell it for (the as-repaired appraised
value), it's a "maybe" in my book depending on how much rehab
it needs. If it needs much, I would probably pass unless some external
factor makes it a good buy, like the neighborhood. In other words, if
it needs much rehab, I'd have to be convinced enough to put some of my
own money into it.
I
typically look for houses with a $30,000 spread or better. You have to
decide for yourself, based on values in your area and what is the minimum
you want to make, what spread you'll be happy with.
So,
what is a rehab real estate investor's "homerun? "
Homeruns
occur at the outer edge of what is typical. My homerun deals have occurred
one of several ways.
-
The spread is stellar. Let's say the spread is $45,000 and the rehab is
a manageable $5-10,000.
-
The spread is good, but the rehab is very light. Wham-bam, I'm looking
for tenants within days of closing.
-
The cost is exceptionally low for a given area. Sometimes the spread on
paper will not be anything to get excited about, but the property has
a huge lot, extra bedrooms, or is located an area that is in serious demand.
-
There is NO rehab, and the spread is sufficient that I can buy it with
none of my own money.
True
story - I've only had one NO rehab deal. Wow. This house had been recently
rehabbed, clean and didn't need a thing! This was a homerun just due to
the ease at which I added this property to my inventory! The spread wasn't
great, in fact, I had a local hard money lender make up a story about
being out of money because he thought the spread was too narrow and didn't
want to lend on it. He wrongly assumed there was a significant rehab.
(Being straight up with me was too hard, I guess.) I consider this a homerun
because I bought this property, changed the locks, put out a sign and
had it rented within two weeks. Mind you this is a beautiful well-built
brick/block home in a great neighborhood. Cost to me…nothing. This
house has one of my best cash flows month-to-month.
The
point here is to give you an idea of what kinds of homeruns rehab real
estate investors look for. But, here is a key point…
It's
truly NOT worth my time, or yours, to wait around for the homeruns. I
firmly believe that these kinds of homerun deals come about by being an
active investor. Rehabbers that keep 1-2 projects going at all times,
get calls from wholesaler with great deals. Personally, I make the best
buying decisions decisions with what I have among the properties brought
to me when I am in my "buy mode." Some of these turn out to
be homeruns, some don't.
If
I waited around for only the homeruns:
-
I would waste precious learning time. Since there is no substitute for
experience, I want all I can get!
-
I would lose money over the long run as a buy-and-hold investor. If I'm
buying and rehabbing with little or none of my own money anyway, it doesn't
make sense to wait around for homeruns if I can add properties to my inventory
that fits my investment criteria. If you're in the buy and hold business,
the important thing is how much property can be controlled with as little
money as possible.
Question:
Is it better to have $1,000,000 worth of property appreciating or $200,000?
Hitting
a homerun in rehab real estate, and anything else, requires these two
ingredients:
-
You've GOT to be "in the game." By this I mean you have to have
prepared in advance for your turn at bat. In the rehab business, this
means you have enough knowledge to get started, you have a decided investment
criteria, you have your money source lined up, and you are looking for
property.
-
You are "swinging." In the rehab business, this mean you are
buying property, rehabbing, learning and turning. It's not enough to merely
stay on the sidelines.
Let
me say that again…
IT'S
NOT ENOUGH TO MERELY STAY ON THE SIDELINES.
Bruce
W. Ford is the editor of Rehab-Real-Estate.com.
Get his important Special Report entitled "12
Things Real Estate Investment Gurus Won't Tell You" at Rehab-Real-Estate.com.
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