Buying and selling houses is largely a numbers game

HomeReal Estate

  • Author Alan Cowgill
  • Published September 28, 2010
  • Word count 389

Buying and selling investment properties is largely a numbers game. That's certainly true when you're talking about placing tenant buyers in your houses. Your success greatly depends on the strength of the numbers you work with. In other words, the numbers can either make you or break you.

Over the years, it has become clear that there's a science to coming up with appropriate offers on houses. For the most part, if the house is worth under a certain amount, you use a particular percentage, and if it's worth above a certain amount, you use a specific percentage.

To be competitive in the housing market, with a house valued under $100,000, it's best to use a percentage of 70. If the house is estimated to be worth over $100,000, it's good to use a percentage of 75. By using these numbers, you can be competitive with most other buyers. Of course, if buyers are buying a limited quantity of houses-say one a year-it becomes much more difficult to remain competitive.

It used to be that the 70 percent figure was used for all houses. But then, it became apparent that 75 percent was a good figure to use with higher-end houses. By going up to 75 percent, you're much more likely to be competitive when it comes to purchasing higher-priced real estate.

The only time the percentage would vary would be with a 'subject to' deal, in which you would use a figure of 85 percent. For instance, on a $200,000 property, you would be looking at anywhere from $30,000 to $35,000. You take the after-repaired value times 85 percent while subtracting your repairs, and that gives you the value to base your offers on.

You should start off fairly close to the after-repaired values. That way, you're sure that you have a good jumping off point. Otherwise, your numbers are likely to be filled with errors, and your initial offer will not be sound.

Of course, the structure of your deals will ultimately depend on whether the homeowner wants to get cash up front, wait for equity until later, or receive a little bit of money up front and then more when the house sells. By doing your arithmetic homework, you will be able to make an offer on a house that is low enough to meet your needs, yet high enough to attract the interest of the home seller.

E. Alan Cowgill is the owner of Colby Properties, LLC. and President of Integrity Home Buyers, Inc. Since 1995, Alan has bought and sold hundreds of single family and small multi-family investment properties. His home study system, 'Private Lending Made Easy', shows others how to find private lenders for their very own real estate business.

His website is http://www.truthaboutprivatelending.com

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