Evaluating Real Estate Investments

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Author: Simon Macharia

To succeed in real estate investing, you must evaluate your deals ensuring you can make a profit.

No matter what your business model is, you must therefore learn how to evaluate your deals.

In this article, I walk you through how to evaluate your deals successfully so you make offers that get accepted and make you a profit.

Obviously the way you evaluate your deals depends on your business model.

Here are some scenarios which should act as a general guide.

Let us take each business model at a time:

1) Wholesale real estate investing The general rules for buying a property you are going to flip to other real estate investors is 65 cents on the dollar minus repair costs minus your profit.

In other words you must leave enough money on the table for your real estate buyer or nobody will be interested in it.

You must also factor your profit into it. This means that your profit after you flip the deal must be taken into consideration before you buy. Otherwise you will not make any money or you will be unable to flip it because it will not have any profit potential for the real estate investor.

In a depressed real estate market, I prefer to buy below 65% after repaired value. The lower you can get it the better.

2) Buy fix and sell This works like wholesale real estate investing, without thinking about flipping profit.

Since your properties will be sold at a discount in a poor real estate market, I still recommend you use your wholesale real estate investing formula.

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.

Some people will argue you can still make money with not equity; however, my best advice is to stay out of it.

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 when you cash out, the price might be acceptable by lenders.

In the current market that seems to be going down, it is therefore necessary to make sure you still have equity when you buy the house. 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. Of course this is assuming there are no repairs needed.

Successful real estate investing dictates that you buy houses at the lowest possible price, spending less time, money and effort. Learn how a good real estate investing website can automate your business and make you a more efficient and successful real estate investor.