How To Buy Houses With Equity In Real Estate Investing

How To Buy Houses With Equity In Real Estate Investing

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To be successful in real estate investing, you must but low and sell high in your real estate deals. Specifically, you need to buy houses with equity. You will find this rule applies to all business models in real estate investing.

So how do you figure out the equity in your deals to remain profitable?

The very first investment property I bought was more out of guess work with the numbers. At the time, all properties appreciated in value over time, so you could always make money even with deals that did not look so good.

I did not think my effort justified the little money I made at the end of the day, so I almost gave up pursuing more deals. This was because the numbers and potential equity looked so good I did not think there was any way I could lose.

Let us take an example:

Let us assume you are buying a $200,000 house for $160,000. It might look like you have an instant equity of $40,000.

But let us look more closely at these numbers.

We will assume the house just needs a new carpet and paint plus a few touch-ups before you can sell it. You will be making a monthly mortgage payment of $1300.

Let us assume that you will fix it within 30 days, and that the average time on the market before you can sell it is 90 days.

The numbers would run something like this:

1)Holding costs for 4 months: $5200
2)2% closing costs when buying at $160,000: $3200
3)2% closing costs when selling at $200,000: $4000
4)6% Realtor's commissions when selling the house: $12,000
5)Carpet, paint and minor touch-ups: $10,000
6)Property taxes prorated for 4 months (approximate): $1050

This is a total of $35,450 assuming nothing goes wrong.

In other words, your total expense in this deal is $160,000 plus $35,450, or $195,450.

This represents the profit of a whooping $4550!

If anything goes wrong and you end up spending more in repairs, or it takes two more months before you can sell it, you are end up making a loss in the deal.

This scenario is quite common with real estate investors.

When you do your numbers, you must use PERCENTAGES instead of dollar figures.

When I buy my wholesale deals, I acquire them at 65% minus repairs or lower.

Remember you must also discount your properties to get them sold in a depressed real estate market.

Your house also need to be really attractive both in the asking price and overall condition to get noticed. Buyers today are more picky because they have more houses to choose from.

To make them more appealing, you might have to spend more on repairs.

You must also remember that the holding costs could be much higher because it can take as much as 6 months or more to sell a perfect looking house.

So depending on your business model, work with a percentage that gives a good return on your investment and you are likely to remain profitable in your real estate investing business.

About the Author:
Successful investing in real estate requires that you acquire your deals cheaply and sustain a continuos flow of good deals that make you a profit. Learn how an automated, interactive real estate investing website can help you acquire more deals using less time, money and effort.



Article Originally Published On: http://www.articlesnatch.com


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