Now that the Real Estate market has gained steam, investors are
jumping back in the game. The question is do I flip or hold?
To flip a property and make money, requires more up front work in
finding properties that are selling at enough of a discount to make an after expenses
profit. The old rule of thumb is to own the property at 65% of the retail
market value after repair. For example; if the retail value of a property is
$200,000, than I you should have no more than $130,000 totally invested. If the
property required $20,000 for repair work and or other outstanding liens that
brings me to $110,000. I have been around Real Estate since 1999, have I seen
properties sell at a close to 50% discount? Yes but they are far and few. The
reason to flip is to turn your cash over as fast as possible, looking for 50% discounts
does not sound to conducive to that end.
In my option you can own the property up to 80% of after repair
and still make money after you pay Real Estate commissions and standard closing
cost. Example $200,000 sales price if you own it at 80% that brings you to
$160,000 after repair and to $135,000 pre repair (assuming the home requires
$25,000 to bring to marketable condition). That leaves your profit at $28,000
or about a 17% return on your money. Even if you only did that once per year
that is a reasonable rate of return on your money. Do that 3-4 times per year
and that give you an estimates 70% rate of return on your money per year.
If you are going to buy and hold expect to make a 5-8 % rate of
return off your money. That number reflects subtracting 10% for repair, vacancy,
tax, insurance and maybe Home Owner Association fees. If the market is going up
with any type of steam you will be able to maximize your investment. My suggestion
is not to overprice rental units, it will take longer to find a qualified tenant
and then they may be more likely to leave and find a cheaper unit after the initial
lease term is up. Use common scene when renting to someone that you don’t know.
Hope this information will aide you with your real estate
investment strategy. If you are in the market to buy or sell Residential Real
Estate in Palm Beach County, please feel free to contact me Karl R Schulz Friday
Realty LLC.
