Evaluating Real Estate Investments

Evaluating your deals before you buy them is crucial to the success of any real estate investing business.

Learning how to evaluate your deals is therefore necessary no matter which type of business model you adopt.

This article walks you through some tips that will help you make offers that get accepted at the same time offers that make you a profit.

Obviously your business model dictates how you evaluate your deals.

These scenarios should act as a general guide.

Let us take each business model at a time:

1) Wholesale real estate investing
When you flip to other real estate investors, the general rule is to buy at 65 cents on the dollar minus repair costs minus your profit.

This means that there must be enough money for the real estate investors or they will not be interested.

Secondly, you must take your profit into consideration. This means that your profit after you flip the deal must be taken into consideration before you buy. Otherwise there will be nothing for you or cannot even flip it if nobody is interested in buying it.

I prefer to go below 65% of after repaired value in a poor market. Lower is always better.

2) Buy fix and sell
You can compare this to wholesale real estate investing, without catering for your profit after you flip it.

Since you sell these properties in a downward market, I would recommend you use the formula for wholesale real estate investing.

3) Subject to's and lease to own real estate investing
When you take over payments, you can afford to settle for a higher price.

Even though some people will argue you can still make money even when there is no equity, I highly recommend you do not take this route.

When you take over payments, the perfect scenario is when you make money when you acquire the property, get a positive cash flow each month and cash out with a big pay day.

The final cash out comes when your lease to own buyer refinances and owns the house.

Therefore it follows that your lease to own buyer should be able to refinance at an acceptable price that lenders can accommodate.

In a downward real estate market, you must therefore buy houses with equity. This equity will shield you if the market goes down.

I highly recommend that these properties should not require repairs and have at least 25% equity or more.

4) Rentals
The general rule of thumb for rentals is that your buying price divided by your yearly rent is less than 10. The less the better. This is assuming that the houses do not need repairs.

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