I cannot over stress the importance of the saying: “You make the profit when you BUY the home not when you sell it!” I have seen many a house sell for too much to a proposed and supposedly savvy investor, only to see it down the road foreclosed on itself and all the grandiose ideas that the investor had, lie inside, half finished and unpaid for.
So the 1st consideration is how to follow that saying’s advice when buying your first, second, or 15th investment home.
After you have viewed assessed and guess-timated the costs to bring the home up to RTMI Condition, sit down and put together the numbers. If they don’t work, they don’t work and you move on to the next property.
Foreclosed home Asking price $40,000
Average for similar homes Sold in Area $70,000 (non bank owned properties, good condition)
What it would cost you in sales fee(s) -$6000 (real estate, transfer tax, title ins.etc)
Your estimate to bring up to RTMIC -$10000
Your GOAL for return on Investment +$20,000
The highest you would pay for this home $34,000
This is where the adage comes into play. Perhaps there are other prospective buyers for this property. You are perhaps even bidding against them. Remember at this point according to the figures in the sample above, anything above 34K would cut into YOUR Net. How far you do so may be up to you but the higher your go above your minimum the less your net will be. Walking away is hard sometimes but you must and then go out and look for the next one. Don’t get caught in bidding to the point your cash in pocket when done is cut in half or less.
The 2nd way to increase your net at time of sale, is to do as much of the work on your home that you can. Now with new laws on Lead Paint remediation you may have to take a class in order to scrape or remove paint where lead may exist, but if you do so, you can probably do most of the work yourself on your investment. It too is a wonderful learning process!
My wife and I have done plumbing, painting, drywall, trim, flooring, ceramic tile, just about anything interior and most of the work to be done on the exterior. Where I have insisted that a contractor come in is for a new service box for electrical, Furnace, major Plumbing concerns, and sometimes where a stripping and re-roofing is involved. Other than that, most of you can learn to do these things and the equipment you buy such as ladders, tile saws, brushes, paint, lumber, drywall, all may be written off against the profits you might make. And the beauty is that you can keep those ladders, tile saws, tools, etc., for the next project.