Investing in Real Estate, to hold or sell?

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.

 

 

 

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