| Owning a home may be the American dream, but | | | | to calculate your desired profit. Also, do not let |
| many people are dreaming about making money | | | | your emotions get away from you and make a |
| in real estate. We have all read stories about | | | | seat of the pants decision that you will regret |
| someone that made millions in real estate. The | | | | later. If the numbers don't add up based on your |
| fact is many people are living out their dreams | | | | desired profit, move on. There are plenty more |
| buying ugly houses and then selling them weeks | | | | ugly houses out there. Just be patient. |
| or a few months later - often for beautiful profits. | | | | 2. Work With An Experienced Realtor. I find it |
| But how are some people able to do this, | | | | incredible, but too many investors think that all |
| sometimes even the newbies? | | | | realtors are created equal. Not true. If your goal is |
| Not surprisingly, there are some rules to follow. | | | | to buy run down houses, then you need to find a |
| And the more attention you pay to the rules, the | | | | realtor that specializes in foreclosures, HUD |
| better the chances of you earning some serious | | | | properties, etc. I actually had one fairly |
| money. I got my start in real estate several | | | | inexperienced investor tell me that he thought any |
| years ago by "flipping" houses. What is house | | | | realtor could help him achieve his goal. It's possible, |
| flipping? | | | | but not probable. To get the right result, you |
| Flipping a house is the process of buying a house | | | | have to go to the right realtor. |
| in need of repairs, at a price much lower than | | | | Doctors are doctors, but some have their own |
| market value, quickly adding value by making the | | | | specialty. If you have a serious case of the flu, |
| necessary repairs to get the house to market | | | | would you go to just any doctor to help you get |
| standards, and then selling the house for a profit. | | | | over your misery? For example, would you go to |
| And you do this by using little or none of your | | | | a gynecologist? Of course not. So why go to just |
| own money. Sounds easy enough, doesn't it? But | | | | any realtor to help you find distressed properties? |
| flipping houses is not the path to get rich quickly, | | | | You get the idea. |
| and it's certainly not for everyone. | | | | 3. Use Leverage. Aptly named for the lever, you'll |
| Here are some rules to follow if you decide you | | | | want to take full advantage of leverage because |
| want to make some good money investing in real | | | | it is the key to wealth in real estate investing. |
| estate - especially by flipping houses. | | | | Leverage is the use of borrowed money to |
| 1. Use The Formula. Buying the ugly house at the | | | | increase your profits when you buy an ugly |
| right price is crucial in making a profit. You actually | | | | house. Using little or none of your own money to |
| make your profit when you buy the house, not | | | | buy more houses allows you to make a beautiful |
| when you sell it. You realize your profit when you | | | | profit on someone else's money. |
| sell it. Remember that what you get for your | | | | Although your goal should be to buy property for |
| house after you fix it up will depend on what | | | | thousands below its value, and you can |
| similar properties are selling for in the area. It will | | | | sometimes buy it with no money down, it is |
| have nothing to do with what you spent to repair | | | | important to understand that it does not |
| the house. | | | | necessarily mean that the seller doesn't receive |
| The following formula has worked well for me | | | | any cash money at closing. Rather it means that |
| and it will work for you:a. Determine the "After | | | | there is little or no money out of your pocket to |
| Repair Value" (ARV) of the house you're | | | | make the deal. |
| considering to purchase. Generally, you can | | | | Some investors think there is something wrong |
| determine the ARV by obtaining a list of | | | | with using someone else's money to buy houses. |
| comparable sales ("comps") in the area from a | | | | Well, for most working families, leverage provides |
| realtor. If relying on comps, be sure you obtain | | | | them with not only a roof over their heads and |
| the actual sales price of houses sold and not the | | | | extraordinary tax relief, but also the single best |
| list price. Determining the likely sales price of your | | | | investment they'll ever make. |
| house is the starting point.b. Subtract your total | | | | Most real estate investors work hard at house |
| costs from the sales price: | | | | flipping, have a long-term plan and stick to it. You |
| * Closing costs | | | | can certainly shorten your journey to achieving |
| * Loan fees | | | | your financial goals by using leverage. |
| * Document preparation fees | | | | 4. Use Psychology. When fixing up the house, let |
| * Homeowner's insurance | | | | psychology drive you. It's not you who has to like |
| * Title policy | | | | the house. Your potential buyer has to like it. |
| * Repair costs | | | | Remember, you're not going to live in the house, |
| * Interest on the loan | | | | so don't go overboard on the repairs. If you have |
| * Property taxes | | | | carefully defined your niche market, you will know |
| * Sales commissions | | | | their likes and dislikes. Make the right repairs to |
| * Other fees | | | | get the house to market standards and then stop |
| You will want to project your costs based on | | | | and put a "For Sale" sign on it. I have talked to |
| four majaor categories. Buying, Repairs, Carrying | | | | new investors who frankly admit to doing too |
| or Holding, and Selling. After you determine your | | | | much to the house, but they couldn't help |
| estimated costs from all four categories, subtract | | | | themselves because they didn't like the way it |
| your total costs from the sales price.c. Once you | | | | looked. Doing too much to a house is no different |
| subtract your costs from your anticipated sales | | | | taking your money and throwing out the car |
| price, you will generate your estimated profit. You | | | | window. Either way you lose. |
| will have to decide how much of a profit you | | | | There is almost no other business that allows you |
| want to make on the deal to make it worth the | | | | to buy ugly houses and make beautiful profits |
| effort. When you determine your desired profit, | | | | with almost none of your money in a short time. |
| you'll have the highest price you will want to pay | | | | It's common knowledge that more millionaires |
| for the house. | | | | made their fortunes in real estate than in any |
| If you consistently use the formula, you will make | | | | other business. So what are you waiting for? |
| better and faster decisions regarding a potential | | | | Rehabbing ugly houses can give you beautiful |
| ugly house. Always start with the after repaired | | | | profits. |
| value and then work your way through the costs | | | | |