Know When to Save Them…When to Double Them: 5 Fundamental Rules for Finding, Fixing, and Selling Homes

In the Kenny Rogers song, the “Gambler” says, “Know when to keep ’em, know when to take ’em back.” Even though he’s singing about gambling, these words run deep for real estate investors whose primary investment strategy is to find, fix up, and sell homes for a profit.

Just like a high stakes game of poker, there is a big price to pay if you lose at the game of real estate investing. The choice to “hold” or “fold” is a choice that a poker player, or investor, must make after careful and calculated analysis of the hand they have been dealt or the house they are considering. have a somersault

Professional poker players know that it takes some skill to win at poker. They learn how to spot trends and calculate the odds that another player has a particular card or what cards have been dealt. Based on that information, they will either “hold” and stay in the game, or have the discipline to “fold” and wait for the cards to be reshuffled.

Any real estate investor who trades houses for a living as a means of building wealth should do no less. Flipping houses is not a game, but a business. However, relying on luck to win at bookmakers is just as risky as a poker pro that relies on sheer luck instead of proven formulas for success.

Let me give you five cardinal rules to follow if your investment strategy is to find, fix, and sell homes. These five rules have evolved since I rehabbed over 225 houses in four years.

1. Find the right offer

To find the right investment property, you need to decide the criteria that make a good investment property for YOU. You need to consider the price range of the houses that you will ultimately sell to your buyers. For example, my niche market is providing quality, affordable housing to low to moderate income families. Having defined my target market, I now select neighborhoods where low-to-moderate income families live. In these neighborhoods, most of the houses are between 30 and 50 years old. The homes we seek for rehab are ideal candidates with good earning potential after we fix them up.

2. Risk analysis vs. reward

I get most of my property leads from wholesalers because they know my investment profile. So once I’m presented with a legitimate lead, I have to decide what to offer on the property.

In this step, it is very important not to let your emotions tell you that the house just needs “a little more” rehab money to get it right. You just can’t trust your emotions. Consequently, an automatic formula or process will really help you decide if and when you should “fold” them and move on to the next house.

Consequently, I rely on the following proven formula to determine my maximum bid:

Value after repair

– Costs of rehabilitation (repair)

– Maintenance costs*

– Minimum profit

= Maximum Bid

* (closing costs, property insurance, taxes, utilities, interest, sales commissions, etc.)
Some investors are reluctant to use this formula because the calculations can take some time, but getting it right is more important than getting it fast.

3. Financing the turn to the right

There are two quick ways to get financing for your future investment property.

has. You can get a loan that will be paid back with interest when the house is sold.

b. You can partner with another investor who will put up the money and you will split the profits, usually on a 50/50 basis.

If you decide to get a loan, private lenders are an ideal source of funds for most offers. Private lenders will typically lend money to investors based on the home’s resale value or after-repair value (ARV). Most private lenders will make loans at the loan-to-value (LTV) ratio of 65% to 75%.

If you don’t have access to a private lender and don’t want to lose the deal, strongly consider partnering with another investor. After all, half the profit is better than no profit. Your local REIA is a great place to find other investors with the financial resources to partner with you.

4. Value-added rehabilitation strategy

Although each of the five rules is crucial to the success of your investment, the rehabilitation phase is where most new investors make some serious miscalculations. Rehabbing the home within your repair budget and in a timely manner is essential to making a profit.

If you’re just starting out as a pinballer, build a relationship with a contractor who will help you create a plan for the work that needs to be done to bring the home up to retail standards. Next, determine the materials needed to complete the rehab. Finally, evaluate the cost of labor and materials, and the time (in days or weeks) it will take to complete the rehab project.

5. Profit from the sale

Once you complete the home rehab, it’s time to sell it and take your money to the bank. You basically have two ways to sell the house.

has. Sell ​​the house yourself

b. Hire a real estate agent

Selling the house yourself can be time consuming and you must have the resources to pull it off. You will be responsible for putting up yard signs, directional signs, and distributing flyers throughout the neighborhood on the property. In addition, you will be responsible for all incoming phone calls from prospective buyers and for showing homes, taking applications, and submitting them to lenders you have a relationship with in your town.

On the plus side, you get to keep the commissions (usually 6%) that you would normally pay a real estate agent to sell the house. If you sell homes with an average price of $80,000 each and sell 15 homes in a year, you’ll save $72,000 in real estate commissions.

On the contrary, hiring a real estate agent saves you a lot of time and effort because the agent will manage the entire home selling process. The agent will list the property on the Multiple Listing Service (MLS), market and show the home, make sure the necessary paperwork is done correctly, and ultimately sell the home within a mutually agreed time frame.

Depending on the location of the property, I have used both methods to sell houses and they both work. In high traffic areas, I sell the house For Sale By Owner. Otherwise, I trust an agent to get the job done.

Professional poker players insist on playing with a full deck. Anything less than that and the deck will be stacked against you. Ignore any one of these five rules, and your odds of successfully finding, fixing up, and selling a home for a profit are stacked against you. Apply these five rules to your real estate business and your fears will no longer hold you back because you will know when to “keep” them and when to “take” them back.