Another Ugly Day in Real Estate

August 11, 2017 Facebook Twitter LinkedIn Google+ Online Auction

I’m working on a rehab right now. Imagine what I might look like after shoveling 35 tons of concrete and dirt out of a basement window using nothing but shovels and buckets (I told you it was ugly). Rehabs aren’t for everyone, but some of the things I’m doing to make money on this deal will be very helpful for you to understand. Let me give you the basics of how a real estate deal works. This will start out very broad, and then I’ll give you some of the details of my rehab.

Finding the deal:
There are a lot of ways to find real estate deals. Some of the more common ones are auctions, foreclosure lists, the MLS, and picking up a notice of default list from your county. The best deals, though, are usually found before they go public. If you can find people who need to sell their house before they go into foreclosure or list it with an agent, you’ll have much less competition and get better deals.

That’s how I found my rehab. A home builder I happen to know gave his aging mother-in-law a smaller new-build he had just finished in exchange for her larger house in an established neighborhood. He wanted to sell the house, had some significant equity in the home, and passed about $ 30K on to me.

Doing some work:
Often (not always) you make money by improving a property somehow. Whether it’s a mess and you fix it up or you make needed improvements, you can increase the sales price or rental income by putting some money into the property first.

In my rehab the basement needs more head room to bring it up to code. It will take about $ 30K to lower the floor and finish the basement as a duplex. Based on the value of other duplexes in the area, the value of the house will increase around $ 40K~$ 50K as a result.

Exit Strategy:
An “exit strategy” is what you’re going to do to cash out of a deal–it’s how you plan on making your money. For example, you could wholesale a property to another investor, sell it retail to a home buyer, find a lease option tenant, or just keep the property and rent it out.

Your exit strategy will depend on what will make you the most money and when. For my deal I’ve got long-term financing in place and I plan on renting it out (it’ll cashflow around $ 450/mo) till the market peaks again and then sell it to a home buyer or an investor who wants rental property. By that time I should be able to make $ 60K+ on the deal.

That’s the basic anatomy of a deal: finding it, working with it, and cashing out of it. For every property you find you want to have this all planned out before you purchase the property. Too many beginners buy a property and THEN try to figure out how to make money at it.

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