Properties for Profit: Tips to Help Find the Best Investment Deal

Purchase Checklist:

Location, Location, Location...Is the house in a safe neighborhood that would attract potential buyers for a fast resale?

How long has the house been on the market and why is it being sold?

Is the house structurally sound and the mechanics in fair to good shape?
( i.e. Roof, Foundation, HVAC etc. are high-price "fixes".)

Can it be renovated or brought up to shape for less than $5,000, $10,000 or $25,000?
(What ever price YOU set as your maximum expenditure.)

What is the total expenditure with loan cost factored in?

Are you willing to take a financial risk on this property should it not sell right away?

What are the other houses, in a 5 mile radius, selling for?

How long have other houses been on the market before selling?

What is the "atmosphere" like in the neighborhood and surrounding areas?
(Look for number of rentals, abandoned homes, run-down properties, or a high % of commercial properties in the area.)

Is the property selling at least 20-25% less than the similar sales in the surrounding five mile radius?

Will the house pass City, County, Pest and Lender Inspections?
(i.e. Appraisal, Title, FHA guidelines, etc.)

Will the Seller make the house available for inspections prior to closing?

Will the Seller deliver a General Warranty Deed at Closing?

Can I purchase, renovate, clean, market and resale the property within 60-90 days?

What external factors will affect the outcome of this venture?
(Examples: Season of the year, weather conditions, political/economy factors, your schedule, time restraints, your financial situation.)

Can I financially carry the property if it doesn't sale right away?

Will Environmental Hazards, Encroachments, Easements, Landfill, Flood Zone, Zoning Violations, Neighborhood Nuisances, Lawsuits, EIFS (Synthetic Stucco), Termites, Subdivision Restrictions, HOA Rules/Regulations, Clouded Title, Drainage or Grading Problems affect the purchase and/or resale of the property?

Formula for Success: How to Figure Offers to Purchase Price and Profit

This is a guideline to help you establish an amount to offer for the purchase of your investment renovation. You can adjust the % to whatever profit you want to make. This is an estimate of the financial face of the deal & not an accurate accounting of.

RV = Repaired Resale Value of Property

CC = Closing Cost

FF = Finder's Fee (Optional Fee to Scout, Dealer, Wholesaler, etc.)

ER = Estimated Repairs

OA = Allow 20% of ER for Budget Overage Allowance

MO = Maximum Offer you can Submit to Buyer

% = Percentage of Profit you expect from Deal

"Formula: RV x % - ER-CC-FF-OA = MO"

Example: An Investor decides to make an offer on a house that he feels he can resale for $100,000. He wants to make a 25% to 35 % profit. See the following formulas he would use to figure what amount he should Offer to Purchase the house for.

Example of LTV 75% Cost = 25% Profit expected from Deal. (He should offer $57,000.)

Example of LTV 65% Cost = 35% Profit expected from Deal. (He should offer $47,000.)

RV (Repaired Value of House) = $100,000

CC (Closing Cost) = $1,000

FF (Finder's Fee...if any) = $5

OA (Overage Allowance) = $2,000

ER (Estimated Repairs) = $10,000

MO (Maximum Offer to Purchase Price)

Example 1: 100 x .75 -10 -1 -5 -2 = $57,000 (Maximum Offer to make 25% Profit)

Example 2: 100 x .65** -10 -1 -5 -2 = $47,000 (Maximum Offer to make 35% Profit)

** First Deal Tip: Use a 10% decreased Loan to Value (LTV) percentage if it is your First Deal. A Lender may not consider you an Investor yet and may give you a bigger break on the down payment requirement of your first loan.