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Unless you are independently
wealthy, have an extremely high annual income, or plan on hitting the
Powerball lottery, sooner or later, you'll have to learn how to generate cash
profits from your real estate investing.
The old joke "How do you make a million dollars in Real Estate? Start
with 2 million!" has become real for more people than care to be
counted.
Just owning real estate is no guarantee of wealth. There are a whole bunch of
things you have to do right to receive your just reward. Not the least of
which is staying financially healthy, while waiting on your big pay day.
Let's face it. Wealth building, as it relates to real estate, is a long term
proposition. It's the "buy and hold" strategy. You might fool
yourself into thinking a property is producing a tidy little profit for you
each month, but the real profit is down the road.
But what about today? What can you do to increase your cash profits today?
Wouldn't it be great to be able to generate cash profits today, not months or
years in the future? Sure it would. And the absolute fastest way I know to
stuff your pockets with cash is...
Wholesaling
Wholesaling (aka Flipping Houses) is the "buy low, sell
low" strategy. Here's how it works in a nutshell. You survey the real
estate investors/buyers in your marketplace. You find out their buying
criteria. What are they looking to buy? What are they buying? And under what
price and terms?
Next, you go out into the marketplace and secure the product they want to buy
at a price that allows you to profit. Then sell it to them. Like I said,
nutshell. It's not any harder than that.
How about a real life example?
Just last week a Realtor called me about a house she had
listed. She wanted me to take a look and make an offer. This is exactly what
I want. Somebody calling me soliciting an offer.
So what do I do? What would you do? Go out and look at the house as soon as
possible? Like right now? Sure. So I did!
The house had been completely redone. It had a new kitchen, new hot water
heater, new heating system, freshly painted inside and out. It was cute but
small. Two bedrooms and one bath. About 900 to 1,000 square feet in a good
rental area, but a poor resale neighborhood. Very little retail demand.
The house had been reduced to $25,000. Not a bad price, but not good enough.
I made a formal written offer for $15,000 Cash. The seller countered at
$19,600. I balked. We go back and forth and back and forth. I come up to
$17,500. The seller holds steady. Okay, okay. Let me interject something
here.
The house was vacant, listed with a MLS Realtor (the one who called me). So
it had a lock box on the door. I could go look at the house any time I
wanted. And that's exactly what I did. Except, every time I went, I just
happened to take another investor along.
I'd ask them what they would be willing to pay for the house (cash). One said
$20,500. Another said $22,000. And yet another said $21,500. Not a bad market
analysis. By the way, this house should rent for $400 to $450.
Since I needed some spending money for a cruise of the Eastern Caribbean, I
decided to make this deal work. The negotiations continued. I agreed to split
the difference and we settled on $18,600.
We closed this deal two days ago. I didn't have to use any of my own money.
My buyer/investor came to the closing with the cash. He bought for $21,500. I
passed my share of the closing costs on to my buyer and took home $2,900. By
the way, I'm leaving on the cruise next Saturday.
Change the numbers if you like
These numbers and prices may not make sense where you live.
Change them to reflect your marketplace. This particular house would probably
appraise for $30,000 to $35,000 here in the deep south. It might be $150,000
where you live. But you get the basic idea.
As to the net profit. This deal was skinny. Real skinny. I would have liked
to have made more. But the real choice was $2,900 or nothing. What would you
have done?
Total time from contract to close was seven days. This could have been done
either faster or slower, depending on need. Obviously, if the seller wanted
to close faster, that would have affected the negotiations, wouldn't it?
Let's talk rules of the road
Flipping houses is a great business. But you need to be aware
of what really makes it work, not some pie in the sky theory. The number one
rule is: You must determine what buyers will buy. What are they starving for?
Constantly stay in touch with your market.
Rule number two can be difficult for many people. Don't be greedy. You
have to be willing to leave enough profit in the deal for the other guy. If
you don't, you're cutting your own throat.
Your goal should be to develop a pool of buyers who can make a decision and
close fast. Becoming a source of profitable deals is the only way to do this!
And then there's rule number three. You can't do business with everyone. If
you have trouble remembering this one, have it tattooed on your writing hand.
Don't waste your valuable time on people who won't do business with you.
It's sad but true. There are people out there who don't want you to make a
profit no matter how good the deal is for them. Move on. There are plenty of people
who will appreciate the benefits of doing business with you.
How much do you want to make?
Wholesaling works! You'll be
amazed at how fast you can make money in this business. How much can you
make? Well, that depends.
If you're new to this concept, begin with a modest goal of generating one
deal a month with a minimum $2,000 profit. Start listening and paying
attention to the buyers in your market and your profits can easily escalate
to $10,000 a month or more. Not too shabby for a little add-on business.
So, what are you waiting for? Give it a try. I think you'll agree, this is
the absolute fastest way to stuff your pockets with cash. And who knows, you
might even decide to spring for one of those umbrella drinks as you cruise
the Eastern Caribbean.
Just don't forget to send one over to me. I'm the happy guy in the dark
sunglasses.
About the author...
Scott Britton has been successfully
buying, selling, and investing in single family houses and mortgages for over
20 years. He writes and publishes The University of Real Estate Letter
from his home office in historic Jackson, Mississippi.
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