Making Money With Real Estate: The Final Analysis on House #8
Flipping Bank Owned Real Estate
Making money in real estate is a matter of knowledge, planning and ACTION. Lots of people get to the planning stage but stop short of the action step. I was scared sh*@less when I bought my first house flipping project and tried to rehab and resell it. But I did…and here we are 2 years later with House #8 now SOLD!!!
I like to do a recap of the financials of a deal so you can see how I am making money with real estate and better yet how you can too.
When I first started in this business I saw a lot of hype about how much money you can make with bank owned real estate, flipping, etc. But I never did see exact dollar amounts of how much things cost, exact details of all the costs involved in a real estate transaction and where exactly the supposed profit, on those hypothetical scenarios, comes from…
So with this website I set out to give it to you straight: real houses, real mistakes, real deals and see how it all shakes out, both good and bad.
I know many investors that do not like to share their financials (much less on the internet) and they have good reasons for it. But I feel there is a lot that can be learned by both you and me by sharing how I am making money with real estate.
First, the sales process on this house was lengthy because we had an initial cash offer which we accepted. We put the house under contract but then there was about a 30 day cycle of back and forth on requested repairs, conditions and on and on that seemed to drag on forever.
That first offer ended falling through and the house went back on the market. The second offer came in about 30 days later. It was a financed offer but it was for more than the cash offer. I checked the buyers qualifications and they seemed they had a pretty good chance of qualifying for their mortgage so we accepted their offer.
It took about 35 days to go through inspections, appraisals and mortgage approval. The only major issue out of the inspection was some wood trim on the exterior they requested to be replaced and we agreed to a small discount in price so they would take care of it at their discretion. Other than that the sale went through just fine.
Show Me The Money!
Soooo…the first thing you will probably notice is that we made some money on this one , always a good thing! Yes, it was not as much as what we intended to make, but nevertheless in this market it’s still a good way of making money with real estate.
Although an ROI of 14% is not very impressive the IRR (return on my money over the time it was invested) is still pretty good and so is the annualized ROI. Looking at these numbers and not just the profit is how I figure out if I am making good investments of my time and money.
Other than the profit, look at the rehab costs. Our rehab budget was $43k so being $3k over, less than 10%, is pretty good by most rehabbers standards.
At the 2d to last line you will see a rehab price /sft. of $21. This is how I compare one rehab to another. So this is the second most expensive rehab I have done to date. House #2 is still the most expensive one (and least profitable).
Much like I initially estimated the reason it was expensive was due to size and not rehab complexity. Everything from flooring to roofing cost more in this house due to it’s size.
You will also notice the line that reads “Commission on Sale”. This is because my wife, who is now a real estate agent, saved us that much in commissions in this transaction. I tell you that for an investor either being an agent or having an agent partner is extremely advantageous.
Of course the part of this business that you cannot measure with numbers is that we sold this house to a another young couple (4th in a row) who were ecstatic with their new home and told me they had been shopping around for a long time and looked at many so called “renovated” homes and had seen nothing like mine
Making money with real estate comes down to using your creativity and initiative to take distressed, bank owned real estate and turn it into a valuable commodity again. In the process you HAVE to create win-win opportunities for everyone involved; wholesalers, contractors, agents, buyers and you of course.
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