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How to Determine if a Deal is Good for Real Estate Investing

By Simon Macharia Subscribe to RSS | March 13th 2012 | Views:
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Being able to recognize a good deal is crucial to the success of a in real estate investing business. While you may come across so many properties for sale, not all of them qualify as profitable real estate investments.

So which ones are good and which ones are not?

The key to successful real estate investing is following a business model that you understand. Whether you wholesale properties, do lease options, fix and flip, keep as rentals, etc, you must develop ball-park figures that help you determine whether you have a deal or not.

The following 3 steps apply when analyzing your deals:

1) Pre-screen your sellers

Of course, you must properly pre-screen your sellers so that you have all the information you need to do your numbers. It is important that you invest in a real estate investor website that helps you pre-educate motivated sellers, pre-screen them and pre-negotiate with them.

Once you receive the seller information, you can quickly tell if you have a deal or not.

If you end up pre-screening them over the phone, a simple script with the proper questions should help you get all the information you need to analyze the deal.

2) Run comparable sales

You then need to determine how much the house would cost TODAY if it was sold in perfect condition.

3) Analyze your offer

Armed with this information, you can then determine if you have a deal or not. Of course, you must have the mortgage balance and asking price to do this.

a) Wholesale deals

To qualify as a wholesale deal, you should buy the house at a maximum of 70 cents on the dollar minus repairs. Try to target 65% minus repairs in a poor real estate market.

You must also calculate your profit in this calculation. For example, if you want to make $5000 in the deal, your buying price should be 65% minus repairs minus $5000.

You have to remember that the lower your buying price, the lower you can flip it and the faster you can sell it.

b) Rentals and lease options

If the house needs no repairs and does not qualify as a wholesale deal, then it probably qualifies as a good deal for rentals and lease options.

You must therefore know the rental rates in the area. Obviously, the monthly mortgage payment must lower than the rental rates for this to be a viable deal. This means if the rent is $1500 per month, and the mortgage payment is $1150, then you should have at least $350 in monthly cash flow.

You can use rental rates to determine your cash flow; however you can get better cash flow with lease options.

Remember you still need equity in these properties because you will need to cash out in the future.

c) Short sales

A short sale is viable if none of the options above cannot work and the mortgage payments are late.

You can get better results with properties with more than one mortgage.

We have covered short sales in separate articles.

Simon Macharia - About Author:
Be sure to visit our blog to learn more about techniques and strategies for real estate investing. Learn how you can increase your profits with an automated website for real estate investing that makes you close more deals using less time, money and effort.

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