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Friday, May 28, 2010
Wholesale properties to us... Here's Our Criteria.Wholesaling is a great way to start out in real estate. To be successful you need to proudly
embrace the position of middle man or woman. You need to network. Your success will
depend on your buyers list and your ability to find good properties. That is where your value lies.
You need a buyer who is serious and moves fast on good deals. This market won’t wait around
for indecisive buyers. I’m one of those serious buyers. I move fast on good deals
and once I commit to a deal I very rarely walk and, if I do, it’s only as a very last resort and with great pain and
deliberation.
You have got to have confidence in your buyer and your buyer has to have confidence in you,
the wholesaler. The only reason I would pay finder’s fees is if a wholesaler is saving me the time
and hassle of pursuing dead end after dead end looking for an acceptable deal. I want deals presented on
a silver platter. I want wholesalers who have deals when they call me, not another dead end.
I think new wholesalers often neglect or under price 3 key general aspects of a rehab deal.
Many newbie investors only account for the purchase price and the repair costs on their deals, but there is more.
Make sure you also account for closing costs when you – or I- buy the home, holding costs, and closing costs
when I sell the home (including realtor fees and possible closing costs paid for by the buyer.) These three
items can easily add up to 23% of your end sales price. You won’t be in business if you neglect or
even undervalue these costs.
Base your deals on the numbers. Know the value of your property “as is” and
know the value after repairs (I can assist you with this.)
Know the value and costs of your repairs. Know the costs of the transaction. Make
sure you (or in this case your end buyer, me) have about a 20% net margin after all costs. Here is how
I figure most of my flips. Take the after repair value or what you think you can sell the home for after
it’s fixed up and then deduct:
(1) 20% for
your buyers profit. Some people require thicker margins, but I really recommend not going any less than
20%. (2) 6.5-8% for closing costs
when you sell ( I normally pay 4% for a realtor and 1/2% in misc closing costs and I like to budget 2-3% for the buyers closing
costs at least in my market)
(3) The cost of your repairs (get estimates) or, at least a good list of repairs.
I’ll help you with those costs if you put together a good package. Pictures, and lots of them,
are also helpful.
(4) 6 months of interest costs. Take the purchase price and multiply it
by .12 and divide that number by 12 and then multiply that number by 6. That will give you a good ballpark
of what my interest costs for 6 months will be. You should also add in taxes and insurance but I can help
you with that. For a rule of thumb, on this last deal I completed I spent about $5,000 on taxes and insurance
for 4 months on a home that sold for $420,000. Or, 1% of the end sales price will be close enough for our
purpose at this point.
(5) 7% of the purchase price for closing costs when I buy it. I pay 4- 5
points and usually about 2% for closing costs (title fees, title insurance, tax stamps, lenders lawyer, etc.
(6) Your finder’s fee
The resulting number will be the minimum price you (the wholesaler) should be willing to offer on a property.
I know step 4 and 5 is confusing since at that point you won’t know the purchase price, but you should have a ballpark idea. Just put a good estimate in for step 5.
Example
Scenario: You find a home that will be worth $500,000 after it’s fixed up. After repair
value = $500,000
Deduct: Step 1) 500,000 X 0.2= $100,000 this removes the 20% profit needed to make a deal
worth while. Step
2) 500,000 X 0.08= $40,000 this is the closing cost for when I sell the property Step 3) Good estimate of repair
costs Step
4) Say $250,000 X .12=30,000 divided by 12= 2500 (my monthly interest costs) x 6 months = $15,000.
Throw in $5,000 for taxes and insurance. This is a good estimate for the projects
interest costs. Step 5) $250,000 X .07= $17,500 this is my closing cost when I buy the home. Step 6) Your finder’s fee. I
would say 10% of the end profit would be reasonable. $10,000. Or, whatever you feel you can get.
So your math
will look like this:
500,000
-100,000 Minimum Profit requirements
-40,000
closing costs at sale -50,000 Repairs (I just made up a number for this example) -15,000 6 months interest -5,000 taxes and insurance -17,500 closing
costs on the purchase -10,000 finder’s
fee
262,500 is your maximum purchase price.
Once I go through the above backwards plan and get a purchase price; I then go through it again starting
with my newly discovered purchase price and adding all the costs to make sure the price falls within a good window for a fast
sell. Holding costs can kill you. Cash flow is one of the biggest rehabber killers.
These are
not absolute numbers. Some deals I would have to see thicker margins. For instance if
the comps were really uncertain, the neighborhood is particularly risky, if the project is a long distance from me and therefore
more difficult to manage, and an endless number of other factors. Some deals are attractive enough that
I would feel comfortable cutting it a little tighter. Every deal is different. However,
if you bring me a deal that looks like this then we have a really good chance of getting it done. Flipping
is more art than science. The numbers above are about as much science as you get and offer a good starting
point. Happy
hunting. Justin Pierce
Snow Goose
Homes LLC
703-587-8929 cell
888-680-6881 office
10:22 am edt
Monday, May 24, 2010
ECONOMIC UPDATESLast Week in the News
The National Association
of Home Builders/Wells Fargo housing market index rose three points in May to 22. It was the highest reading since August
2007. An index reading below 50 indicates negative sentiment about the housing market.
The combined construction of new single-family homes and apartments in April rose 5.8% to a seasonally adjusted annual
rate of 672,000 units. Applications for new building permits, seen as an indicator of future activity, fell 11.5% to an annual
rate of 606,000 units.
The producer price index, which tracks wholesale
price inflation, fell 0.1% in April, following a 0.7% increase in March. Economists had expected a 0.1% rise. For the year,
wholesale prices are up 5.4%.
The Mortgage Bankers Association said its
seasonally adjusted index of mortgage applications for the week ending May 14 fell 1.5%. Refinancing applications jumped 14.5%.
Purchase volume decreased 27.1%.
Consumer prices fell a seasonally adjusted
0.1% in April, following a 0.1% increase in March. It was the first decline since March 2009. On a year-over-year basis, consumer
prices at the core rate — excluding volatile food and energy prices — were up 0.9%, the smallest increase since
January 1966.
Initial claims for unemployment benefits unexpectedly
rose by 25,000 to 471,000 for the week ending May 15. Continuing claims for the week ending May 8 fell by 40,000 to 4.625
million.
The index of leading economic indicators — designed to forecast economic
activity in the next three to six months — fell 0.1% in April, after a revised 1.3% gain in March. It was the first
decline since March 2009.
Upcoming on the economic calendar are reports
on existing home sales on May 24, the housing price index on May 25 and new home sales on May 26.
Provided by:
Judy Haller
Prospect
Mortgage
3985 Prince William Co. Pky., Suite 104
woodbridge, VA 22192
Office: (703) 590-7132
10:57 am edt
Monday, May 17, 2010
ECONOMIC UPDATESLast Week in the News
The Commerce
Department said wholesalers increased their inventories by 0.4% in March, following a 0.6% rise in February. Sales at the
wholesale level rose a robust 2.4% in March, marking the 12th straight monthly gain.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ending May
7 rose 3.9%. Refinancing applications jumped 14.8%. Purchase volume decreased 9.5%.
The trade deficit increased 2.5% to $40.4 billion in March, from a revised $39.4 billion gap in February. Economists
had expected the trade deficit to widen to $40.1 billion. Exports rose 3.2% to $147.87 billion. Imports increased 3.1% to
$188.3 billion.
Retail sales rose 0.4% in April, following an upwardly
revised 2.1% increase in March. Economists had anticipated retail sales to rise 0.2% in April. On a year-over-year basis,
retail sales increased 8.8%.
Industrial production at the nation’s
factories, mines and utilities increased 0.8% in April, following a 0.1% gain in March. It was the 10th consecutive monthly
increase. The overall factory-operating rate rose to 73.7% of capacity in April, the highest reading since November 2008.
Total business inventories rose 0.4% in March, following an upwardly revised 0.5%
increase in February. All components showed nearly uniform increases in March: manufacturers up 0.3%, retailers up 0.4%, wholesalers
up 0.4%.
Initial claims for unemployment benefits fell by 4,000 to 444,000 for the week
ending May 8. Continuing claims for the week ending May 1 rose by 12,000 to 4.627 million.
Upcoming on the economic calendar are reports on the housing market index on May 17, housing starts on May 18 and the
index of leading economic indicators on May 20.
Provided by:
Judy
Haller
Prospect Mortgage
3985 Prince William Co. Pky., Suite 104
woodbridge, VA 22192
Office: (703) 590-7132
1:33 pm edt
Monday, May 10, 2010
ECONOMIC UPDATESLast Week in the News
The Institute for Supply
Management reported that the monthly index of manufacturing activity was 60.4 in April, after reaching 59.6 in March. It was
the ninth straight month of expansion and the best reading since June 2004. A reading above 50 signals expansion.
Total construction
spending rose 0.2% to $847.3 billion in March, following a revised 2.1% drop in February. The increase was largely due to
a 2.3% surge in public construction spending.
Factory orders rose 1.3%
in March, much better than the 0.1% decline economists had anticipated. It was the seventh straight gain and follows an upwardly
revised 1.3% increase in February.
The National Association of Realtors reported
that its pending home sales index, a forward-looking indicator based on signed contracts, rose 5.3% in March, after a revised
8.3% increase in February. On a year-over-year basis, pending home sales are up 21.1%.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ending April
30 rose 4%. Purchase volume increased 13%. Refinancing applications fell 2.1%.
The Institute for Supply Management reported that the monthly composite index of non-manufacturing activity was 55.4
in April, unchanged from 55.4 in March. A reading above 50 signals expansion. Economists had anticipated a reading of 56.
Employers added 290,000 jobs in April, following a revised 230,000 advance in
March. The April increase was the most since March 2006. The improving economy is encouraging more people to seek employment.
This pushed the unemployment rate from 9.7% in March to 9.9% in April.
Upcoming
on the economic calendar are reports on wholesale trade on May 11, international trade on May 12 and retail sales on May 14.
Provided by:
Judy Haller
Prospect Mortgage
3985 Prince William Co. Pky., Suite 104
Woodbridge,
VA 22192
Office: (703) 590-7132
9:30 am edt
Monday, May 3, 2010
ECONOMIC UPDATESLast Week in the News
The Commerce Department announced that gross domestic product — the total output of goods and
services produced in the U.S. — increased at an annual rate of 3.2% in the first quarter of 2010. Economists had expected
a slightly larger 3.4% increase. This follows a 5.6% pace of growth in the fourth quarter of 2009, marking the best back-to-back
performance since the second half of 2003.
According to the ICSC-Goldman
Sachs index, retail sales rose 0.2% for the week ending April 24. It was the sixth consecutive gain. On a year-over-year basis,
retailers saw sales increase 5.5%, the best showing on record, topping a 4.7% increase for the week ending April 3.
The Standard & Poor’s/Case-Shiller 20-city housing price index fell
a seasonally adjusted 0.1% in February. Following a 0.3% increase in January, it was the first decline after eight consecutive
monthly gains.
The consumer confidence index rose to 57.9 in April from
a slightly revised 52.3 in March. Economists had anticipated a reading of 53.5. The index was benchmarked at 100 in 1985,
a year chosen because it was neither a peak nor a trough in consumer confidence.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ending April
23 fell 2.9%. Purchase volume increased 7.4%. Refinancing applications fell 8.8%.
Initial claims for unemployment benefits fell by 11,000 to 448,000 for the week ending April 24. Continuing claims for
the week ending April 17 fell by 18,000 to 4.6 million.
Upcoming
on the economic calendar are reports on construction spending, pending home sales and factory orders on May 4, and consumer
credit on May 7.
Provided by:
Judy Haller
Prospect Mortgage
3985
Prince William Co. Pky., Suite 104
Woodbridge, VA 22192
Office: (703) 590-7132
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