I live in ca and was wondering what are the best techniques to use?
Although I have been to seminars and have read several books on flipping properties, rehabbing properties,and rich dad poor dad . total of about 8 books .Plus been researching on forums and the web. All this since 2003.
For the techniques you recommend for my area. What course do some of you recommend I purchase for my next step in education.
I want to build fast cash flow to start rehabbing homes in the future. Even though I havn’t read anything on subject 2 or leas options I am also interested in these areas as well.
where have you been the last 5 yrs while the RE party raged here in Calif? This keg is blowin’ foam and riding high in the ice bucket.
seriously, the market is flat in most places in Calif and declining in some. The strategy of Buy& Rent= Buy & Lose money every month. Flips are tough becuase inventories are up and its take up to 6 months to sell a property. There is a fair amount of action in purchase pre-foreclosures & foreclosures, but you really must understand what you are doing or you will lose your shirt. A lot of owners have no equity or are underwater and thus plenty of foreclosures are going back to the lenders.
Bottomline, while money is being made in this market, its not a great place for newbies to getting their feet wet. Sorry to be negative but thats my opinion. You are better off to look somewhere else.
If you find a potential winner, here’s how you make sure your numbers are really in order:
Figure out the average days on market (DOM) for your properties in your area (it says DOM:xx on every listing). Add on how long it will take to complete the first closing and renovations. Multiply the number of months by the price depreciation in your area from month to month (measured in a percent). Then deduct that from your current ARV to get what your property will be worth when it finally sells.
You may even want to tack on an extra couple of months if you see the market continuing to slow down in the future. It doesn’t hurt to be conservative with your numbers, only hurts to be conservative when you vote.
Let’s say the ARV of your property is $400k today. The average DOM for properties in your area is 120 days or 4 months. It will take 1 month from getting the property under contract until you actually own the property at closing. It will take 2 months to complete renovation.
So you have 4+1+2= 7 months from (purchase) agreement to (sale) agreement.
Your area is depreciating at a rate of 5% a year .05/ 12= .004167 a month. Your area is depreciating at .4167% a month.
Your monthly depreciation X The length you will own the property (excluding the time you have it under contract with a buyer) equals .029167 or 2.91%
Subtract 2.91% from your current ARV of 400k and it shows the property will be worth about $11,600 less from the time you owned it, for a real ARV of about $388,400.
This is a mandatory equation for rehabbing in a declining market. If you think your market will get worse from the time you purchased until the time you eventually sell, add more of a depreciation rate or more DOM.
also remember if the average DOM is 120 days; that means 50% of the properties take LONGER. I would use a more conservative estimate like 6 months; if it takes less than its money in your pocket.
Also, in a declining market like we have in Calif, I would only consider a house that is at the median price or below for your area. I did a high end rehab back when the market was HOT and it was still tough to sell. The lower end of the market aseems OK right now s those hosues are still moving pretty well from what I hear from my real estate buddies.
How did you get the percent of the time you will own the property 2.91%?
The example assumed a 5% annual depreciation. I divided 5% or .05 by 12 months to get the monthly depreciation.
.05/12= .0041666666666667- monthly depreciation
Then I multiplied the monthly depreciation by the number of months you would most likely own the property (7).
.004167 X 7 = .02916 or 2.91%
Then you figure out what 2.91% of your current ARV is (11,600), subtract that amount from the ARV (400k), and you get the most likely value in 7 months (388,400).
Typically if your using comps in your area of recently renovated homes or homes in great condition, the DOM are similar. An average would not necessarily mean 50% of homes took longer to sell (it’s not a median). If you are using the most comparable data, you will get a pretty good number. However, conservative numbers are advisable in a declining market.
First off, I’m a newbie myself and so far have only done one wholesale flip in Chicagoland area, so take my advise with a grain of salt.
Secondly, I want to tell you that investing is NEVER easy. Sure, you can get lucky but that’s not the mentality of the pros.
You CAN make money in Real Estate, it’s just that you have to adjust to your market.
For example, in Chicago, I’m battling the same mentality as you are. I’m thinking… It’s not going to work here, because of XYZ. I’m thinking if only I lived in area ABC, it would be much better for me to invest.
But… as the saying goes, the grass is NOT greener on the other side.
Yes, I don’t know what I’m talking about when we are discussing California market, but I’m guessing that as I’m typing this message, there are people making money there by investing in Real Estate.
I don’t know WHAT they are doing or HOW they are doing it, but if YOU want to be like them, I can’t help you, only THEY can.
So… your goal is to FIND them.
I’d do the following, if I were you. I’d call all the WE BUY HOMES ads in your area and find out WHAT they want to buy(this is the same advice given by Eric Medemar)
Then … FIND them these properties.
If you can’t wholesale, rehab.
If you can’t wholesale or rehab, make money by being a Real Estate Agent.
The possibilities are truly limitless.
Also, to all the naysayers here, those that say CA prices are falling, etc… Falling prices is a GOOD thing for investing.
I know of at least TWO guys in Michigan that make pretty decent living by investing in Real Estate. One guy is in Detroit area, where the market is horrible.
There are areas with population DECLINE, people are fleeing some of these areas, yet, the guy makes pretty good living, because:
a) he knows his buyers
b) he knows what they are looking for
c) he finds them what they are looking for