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Friday, April 6, 2012

Have I Found My Next Real Estate Investment?

Just thought I give you a quick update on what is going on with the investing activity since the last update. Well, the entire month of March was spent making offers on both a property to buy and hold as a rental and also looking for a property to rehab and sell. 

One thing I have learned is that the business of real estate investing is very challenging in the sense that there is rarely a steady flow of work. At times it seems like a "all or none" type of situation. Either you have a deal(s) that is going to make you money in the near future or you don't. 

So a big part of making a living and/or making progress towards achieving your financial goals in this arena is to always be doing something to get that next deal into your pipeline. Whether it is making offers, looking for motivated buyers, staying in touch with your wholesalers/agents/network or any other source that can bring you in a deal. You always need to be working on that next deal, even when you have one in hand...

Because I got side tracked with other non-real estate projects I had let that pipeline dry up and this is part of the reason why it has been so hard to find the next deal. So I have spent the last two months looking and looking and finally it seems I am making some progress.

First of all I had noticed that overall REO inventory was lower and properties were being listed at lower prices. If you add to this the fact that there are more buyers and wannabe investors out there then you get bidding wars. As a result properties that I was making offers on were getting bid to ridiculous prices

Finally in the last two weeks, after more than 40 offers, I have been able to get offers accepted at a purchase price I can live with. I guess persistence is key in this business...

I am actually evaluating two properties. One is a rental and the other one could be either a rental or a flip, interesting situation....

I cannot go into details on the rental because we are still negotiating the contract. I can tell you that it is a different scenario that I am used to because this is a property that was bought by an investor, rehabbed by them and they already found a tenant. Now they are trying to sell to me both house and tenant. This is what is known as a "keyturn investment", because everything has been done already. 

So in order for me to figure out if this is a good investment or not I have to look at the price I would be buying for, the condition of the house, the repairs made, the area and most importantly the income the property will produce

I do this by looking at the rent the house will bring in and then subtracting all the expenses - mortgage payment, taxes, insurance, maintenance/repairs, vacancy costs, etc. This will allow me to calculate my return on investment (ROI) and depending on the ROI I can figure out if it will be a good investment or not. 

So right now the whole deal depends on the ROI calculations and then being able to work out an acceptable price and terms. I want to buy this property with a mortgage so to minimize the use of my own money and boost my cash ROI, we'll see...

I will go into more detail on the other deal because it's a house that can be held either as a rental or I could rehab it and try to resell it. There are a bunch of things to consider in order to make this decision and I'll cover those in the next post...

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