Fixer Uppers

Real Estate Investing Course - Lesson One

Welcome to the course. I know you'll enjoy it. Even more, I know you can use it to make that offer. Time to learn what real estate investing can do for you. You've started the process with this course. Don't stop until you achieve your goals.

This first lesson is about fixer-uppers. I'll tell you why they are more about the numbers than the paint and nails. (More interested apartment buildings or zero-down deals? Don't worry - those are coming soon.)

Okay, let's get started.

I just met a man at a real estate seminar that has been working on a fixer-upper for two years. He's been paying interest the whole time on the credit cards he used to buy it. His story is a good example of what not to do.

He has no real plan. He thought the house was cheap, so he bought it. He guessed at the time and money it would take, underestimating both. Worse, he has this common idea that he'll figure what he has into it when he's done, then add a profit and sell it for that amount.

First of all, would you pay more than a house is worth just because the seller had that much into it? Of course not. The value of a house has nothing to do with what you put into it. What similar houses are selling for determines the value. If you have $110,000 into a fixer-upper and similar homes are selling for $100,000, that's all you'll get.

Also, when you look at it, making money in a fixer-upper isn't about whether you can paint or do plumbing. Paint if you want, or pay others, but either way, making money is all about understanding the numbers. Here's a formula a friend of mine has used to make hundreds of thousands in fixer-uppers.

Fixer-Upper Formula

Always start at the end (the eventual sales price) and work your way back. This is the right way to safely invest in fixer-uppers.

1. Find the probable after-repair value.

To determine how much it will sell for when you're done fixing it up, don't look at asking prices of similar homes - look at the actual sales prices. In fact, don't even try this on your own. Get a real estate agent to help. Even better if he will show you how to to do a basic market analysis using comparable sales. (That too, is in an upcoming lesson.)

Alternately, for an unbiased and more accurate idea, hire an appraiser. First get a good idea of the value though, and make your offer with the contingency that the appraisal has to come in where you think it will. That way, you're only on the hook for the appraisal fee if the value isn't there.

2. Calculate all costs.

There are four basic categories of expenses.

- Buying costs: inspections, appraisals, closing fees, title policies, document preparation, filing fees, etc. You should know these fairly precisely before making the offer.

- Carrying costs: interest on loans, property taxes, insurance, utilities, etc. These should be estimated for a worst-case scenario, like holding the property for six months if you think it will be three.

- Repair and inprovement costs: Unless you are very experienced in estimating contract work, get bids. You can guess when you first write the offer, if you leave a way out, such as making the offer "subject to inspections and buyers approval of the results of those inspections." Then get bids by the deadline for the contingency.

- Selling costs: commissions, advertising, closing fees, document preparation, title policies, filing fees, transfer taxes, etc. These should be easy to estimate.

3. Choose your profit.

That's right, you have to decide what kind of profit makes it all worth your while. Real estate is full of unknowns, and you will have some work to do just finding a deal, so I wouldn't do it for less than $10,000, but that's up to you.

4. Subtract costs and profit from the projected sales price.

Now you have the highest price you can pay for the house. Walk away if you can't get it for this price or less. Offer several thousand less, of course, to give yourself negotiating room.

An Example:

You find a fixer-upper, and determine you can get $138,000 for it when done. The buying costs will be $2,000. Carrying costs will be $3,500. You get repair estimates of $8,000. The sales commission will be $8,300. Other closing costs will be around $1,500. Throw in $1,500 for "unexpected" costs. Finally, you want $14,000 for your effort (your profit).

Subtracting all of that from your expected sales price leaves $113,200. This is the most you can pay, if you want a safe real estate investment. You offer $108,000, and walk away if you and the seller can't settle on something under $113,200.

That is the safe and sure way to do fixer uppers. To summarize:

- Determine the projected sales price.

- Subtract all costs and profit.

- Pay no more than that amount.

Good luck and good profits!

Steve

I'm going recommend products in this course, but don't worry, there will be plenty of valuable information for free. On the other hand, don't trip over pennies on your way to dollars. A couple months ago I bought an $80 e-book that has increased my internet income by $400 per month, after only one day of work to implement it's ideas. Good information doesn't cost, it pays.

All the products I recommend will be relevant to the lesson they are mentioned in. They all come with money-back guarantees. Don't deal with those who won't back up their products. And again, if you want to save your money and figure it all out on your own, there will be a lot of great free information here to get you started.

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