I have been wanting to invest in real estate for quite some time. Finally I was able to put a workable plan together to make my first deal. My first project would be to buy a house, fix it up, and sell it for a profit.
First, I had to put myself in the position of being a cash buyer. It is easier to buy a bargain if you can do the deal NOW. After securing the money I needed to start on terms that were agreeable to me I began looking for my first property. I found the market I wanted to invest in based on knowledge of the area combined with the availability of information for the area. The area I chose has county information on a free website. That gave me access to any information I wanted about a property or a place to start when looking for more information.
After finding an area, I needed to determine what I should pay for a house based on what it should sell for in the market. One valuable piece of information I found was that homes in the area were 14% over priced based on the income and cost of obtaining and servicing a mortgage in the area. Therefore, I knew I should not make my calcualations based on current listings in the market, but deduct 14% from them at the very least.
Next I had to decide upon a formula to use for buying and selling a home. I decided that in order to play it safe, I would put no more than 70% of the repaired value of the home into the home. That is, the cost of the home, and the repairs should not exceed 70% of what I thought I could sell it for.
Now it was time to start looking for my first house. Early in my search I ran accross a motivated realtor who had already re-habbed and sold several houses. She and her husband no longer re-habbed because they didn't have the time, but her knowledge has been priceless. She also was anxiouse to show me homes in the $10,000 to $55,000 price range. It is very difficult to find a realtor willing to really work with you in the lower price ranges, but she has been nothing but enthusiastic about it.
The first thing I needed to remind myself of was that I did not NEED to buy a house unless it was in the right place, and I could buy it for the right price. Patience!!! I only had $65,000 to work with so I was limited. I was shown several houses before my realtor suggested a house that was for sale for $53,000. It was a bank repo that had been sitting vacant for quite some time. She had recently sold two houses on the street, so she knew fairly well what the final selling price would be. After calculating the repairs I determined that $53,000 was a lot more than I could pay. Thus began the negotiations and the wait.
Using the county website I was able to find out how much the bank reposessed the home for, and wrote an offer. It was very low and did not make the listing agent happy…at all. It was rejected and suggested not to offer that low again. So I waited. No one was buying that house at their price, and they were hard to get along with. Two months later, I noted they lowered the listing price to $49,500. Still too high. I waited. Some more. The listing agent was still difficult to contact, and the bank hard to work with.
I continued to look for a project home while keeping this one in mind. The home was accessable so I looked through it often to get more ideas about what I could do to renovate it and continued to wait. In another month they lowered the price again to $46,500. It was time to make another offer. I did and at least this time they countered with $46,000. Still too high. However, this time, the listing agent hinted that if I offered what the bank reposessed the home for, they probably would be more than willing to get this over with. I did, and they accepted.
With my by price of $44,000 and about $18,000 in repair I could expect to make around 13-15 thousand on the property. That was not a bad expectation, and frankly would allow me to sell the property cheap in comparison to what was being sold in the area.
I waited and negotiated a very good deal on the property, but had to be patient. I also did not count on getting this property, but looked for opportunity when it arose.
I apparently got a better deal on the property than I first thought though. The seller needed three weeks to get the paper work done in order to close the deal. As I was waiting for them to close the deal, my realtor called me and said they had someone interested in the house…AS IS. They had been looking at the house and were interested, but didn't get there in time to buy. It was perfect for their project and they really wanted it. I explained to my realtor that for the right price I wasn't dead set on renovating the house. Let's talk. We ran some numbers and decided to tell them if they wanted to buy it for $52,000 I would sell it. That would give me $5,500 profit after all of my expenses, and I wouldn't have to do a thing. They looked over the house and decided that was a good deal. Two days later I accepted an offer to buy the house for $52,000. I had the home sold before I closed on buying it myself. I am currently waiting for them to get all of their paper work together to close the deal. Wish I could do that every week!
I am now looking for another home to renovate. The area I had been looking at is quite flooded now, and has suffered some real economic hardships lately. With the recent closing of Delphi plants and a lot of GM workers taking buy outs, there are many more people leaving the city than coming to it. However, there is one area that stands to do well. It is currently undergoing a transformation that should bring in over 2000 jobs. Many of them high paying jobs in the medical field. There is already a large Health Sciences division of a University in the area. In addition to this a childrens hospital is being built, a research facility iis being built, a huge medical office building, and a school of medicine is also being built. Unfortunately, I don't have the money to buy and hold property right now. The market is going down, but in two years there will be a heavey demand in and around the new medical facilities that are being built. Hopefully I can find a way to benefit when that happens. Until then, I will keep plugging away looking for just the right house.