To be successful in real estate investing, you must but low and sell high in your real estate deals. Specifically, you need to buy houses with equity. Generally this applies to all real estate investing business models.

So how do you figure out the equity in your deals to remain profitable?

The very first investment property I bought was more out of guess work with the numbers. At the time, the real estate market always promised that the prices would appreciate with time, meaning you could still make money even with marginal deals.

I almost gave up pursuing more real estate investing deals because I did not think the little money I made justified all my efforts. This was because the numbers and potential equity looked so good I did not think there was any way I could lose.

Let us take an example:

Let us assume you are buying a $200,000 house for $160,000. At first glance, it may seem to you like you have an equity of $40,000.

But let us look more closely at these numbers.

Assume that you just need to replace the carpet and repaint the house, plus a few minor touch-ups. Your monthly mortgage payment will be $1300.

We will assume that you will complete repairs within 30 days, and that houses are sitting an average of 90 days on the market before you can sell them.

The numbers would run something like this:

1) Holding costs for 4 months: $5200
2) 2% closing costs when buying at $160,000: $3200
3) 2% closing costs when selling at $200,000: $4000
4) 6% Realtor’s commissions when selling the house: $12,000
5) Carpet, paint and minor touch-ups: $10,000
6) Property taxes prorated for 4 months (approximate): $1050

This is a total of $35,450 assuming nothing goes wrong.

In other words, your total expense in this deal is $160,000 plus $35,450, or $195,450.

This represents the profit of a whooping $4550!

If anything goes wrong, such as spending a little more in repairs or it takes 2 more months before you can sell it, you will end up making a loss.

Scenarios like these are very common with real estate investors.

You should only work with numbers are PERCENTAGES not dollar figures.

As a wholesale rear estate investor, I acquire my properties at 65% minus repairs or lower.

Remember you also need to sell your properties at a discount to get them sold.

In order to get noticed, your house also needs to be quite attractive both in the asking price and overall condition. Buyers today are more picky because they have more houses to choose from.

This means you may have to spend more money on repairs to make it more appealing to buyers.

You could end up holding the house as long as 6 months, increasing your holding costs.

As long as you stick to a percentage that gives you a good return on investment for your business model, you are likely to remain profitable in your real estate investing business.

Successful investing in real estate requires that you acquire your deals cheaply and sustain a continuos flow of good deals that make you a profit. Learn how an automated, interactive real estate investing website can help you acquire more deals using less time, money and effort.


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