To be profitable in real estate investing, you have to be able to locate profitable deals and analyze them to make sure you’ll make money. In this article, we’ll dive in on how to locate and analyze real estate investment deals.
What Is A Profitable Deal In Real Estate Investing?
A profitable deal is one that generates a profit – one that makes you more money than you spend on it.
You can measure the profit by using two numbers: return on investment (ROI) and cash flow.
- ROI is the percentage of profit you get from your investment. It shows you how much your property has increased in value compared to how much you paid for it.
- If you’re renting out your properties, then you use cash flow – this is the difference between the income and expenses of your property. It shows you how much money you have left over every month or year after paying for things like mortgage, taxes, insurance, maintenance, etc.
The profitability of any real estate deal depends on the different types of deals you can do in real estate, such as:
- Wholesale Real Estate: This is when you buy a property below market value and sell it quickly to another real estate investor for a higher price, without doing any repairs or improvements.
- Flip: This is when you buy a property that needs repairs or improvements, fix it up, and sell it for a profit within a short time frame.
- Rental: This is when you buy a property that generates rental income from tenants, either for long-term or short-term leases.
- Other types of deals include lease options, owner financing, tax liens, notes, etc.
Each type of deal has its own pros and cons, depending on factors such as the purchase price, repair costs, financing terms, holding costs, rental income, and resale value.
How To Find Deals In Any Market
Where do you find deals as a real estate investor? Since we’ve covered this elsewhere, for the purposes of this article, we’ll just give a brief summary:
- Direct mail: I get it, we live in the internet age. But most of my best deals still come from direct mail – letters or postcards to targeted homeowners in financial distress, divorce, inheritance, relocation, etc.
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- Networking with other professionals in the real estate industry can help you build relationships and trust, which can lead to more opportunities and referrals.
- Multiple listing service (MLS): In this case you’ll be looking for properties that have stayed in the market too long. You can access your MLS by subscribing to a service or working with an agent.
- Online platforms: Websites or apps that list properties for sale by owners or investors, such as Zillow, Trulia, Craigslist, etc can sometimes be good sources of leads.
- Referrals: These are recommendations from other investors, agents, contractors, attorneys, accountants, etc. who may know of potential deals or sellers.
How To Analyze Real Estate Deals
Before you buy an investment property, you’ll want to make sure you can make money out of it. This is where deal analysis comes in.
This involves estimating
- Estimating repair costs
- After repair value (ARV)
- Holding costs – such as mortgage payments (if any), property taxes , insurance , utilities , maintenance , etc.
- ROI and cash flow
Our real estate investing websites have an excellent deal analyzer for this.
BiggerPockets Calculators can also also come in handy for most investors.
Common Challenges And Pitfalls In Deal Finding And Analysis
This article would not be complete without mentioning common mistakes to avoid. This includes:
Hidden issues: – that are not obvious during the inspection or due diligence , such as liens , title defects , environmental hazards , structural damages , etc.
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