X-Post Reality check. How often do you find those deals?

Hello everyone!
OK, I’m not really sure which forum to post this question to, so I posted it to a couple different ones. I apologize moderators for not being able to find the right one on my own. Anyway, onto the question!

For those of you who actually do deals, I need a reality check. From what I’ve learned so far, most people say, “Oh I won’t even do a deal unless I can make $20,000”. OK then, what are the realistic costs of completing a deal?

This is how I see it. (And I’ve never done a deal yet so just trying to educate myself here) Hypothetical situation:
$10,000 to fix up
$3,000 for Tax Title and Insurance
$5,000 holding costs
$7,000 gift to seller
$11,000 to Realtor

Total is $36,000

I wan to make $20K so I essentially have to find a deal that is $56K under market value? How often does this happen for you all? Is this a realistic example of how deals really work?

Thanks for your input!

All of your estimated costs are dependent on the price of house you are selling. The key is not to necessarily find a house with a certain price discount, but to find a house with a certain percentage discount. In a normal market 70% of ARV minus repairs is a good deal. Adjust that percentage dependent on your market. In a strong market with a lot of strong competition and/or with a high appreciation, 75% or maybe even 80% minus repairs might still work. In a weaker/slower market 60-65% is a good place to be.

In reference to minimum of 20K profit, I would say that completely depends on your market. Making $20K profit in my market is the exception and not the rule. I will wholesale houses for a minimum of $4,000, and I would do a small rehab (paint and carpet) on a lower end house for $10,000-$15,000 profit. Now for larger rehab projects ($15,000+ out of my pocket) or on higher end houses (more carrying costs and more risk), I would be looking for $15,000-$25,000 for profit for me to do the deal.

Either way it comes down to a percentage and your market. I normally want about 15% of ARV as profit, depending on the amount of rehab, the size of house, and the risk involved.

I didn’t answer your other question of how often this happens. In my market of a population of 200K, I’ve done 71 house this year. All of them hit my numbers in one way or another.

I know my market wont bear alot of $20,000+ deals maybe a few here or there, ive had a couple of people make $40k plus. The factor that many investors fail to look at when they want to make $20+ a deal is how many $10-15k deals are they passing on while they are waiting for a $20k deal. I would much rather do 4x$10k deals in a month then a $20k deal every 2 months.

One huge factor that most people forget drives price besides location, and condition of the home is the amount of investor competition in the area. Too many investors make prices artificially climb. One large investor willing to except 10k a deal could literally knock every other investor out of decent profits.

When I meet with new investors I tell them my program:

  1. I will tell you how much I can sell the home for when its done and how fast I can sell it at that price.

  2. You tell me how much you will have into repairs.

  3. Then decide how greedy you are.

I have had investors looking for a GREAT deal for months while my other investors settle for GOOD deals and are doing a couple per month.

$10000 profit will always be $10,000 that you didnt have before, if you see alot of great deals then go for those, but if your 1 or 2 months in and havent found your $20k deal then maybe you need to lower your standards

Alot of rookie investors will let that huge profit that they cant find be their crutch so that they never have to do any deals. That way they can run around talking about being an investor, looking at homes, doing their courses, and keep getting ready to get ready. Then when people ask them how many deals they have done they can say “I’m still looking, just havent fournd the right house yet”.

You do need to do your homework don’t get me wrong, the last thing you need to do is buy a $200k home and make only $10k. In my market alot of investors are waiting for some GREAT deals to come up in the nicer areas ($85k to $300k), the problem is they dont come up that often, and when they do there are so many people waiting to buy them that the price gets driven up so high that profits are slim to none.

Meanwhile i’m buying in the “bad part of the city” where homes are $20k to $40k. The investors looking in the pretty areas dont want to buy in this area because “its not a nice neighborhood”. Great for me, the first 5 homes that I bought in the bad area just sold for a total profit of around $110k. I have 20 others in the same area that are just waiting to sell. The beautiful part is well im waiting to sell, I rent them out for $675/piece. Most of these homes after repairs I am into for $35k so I cashflow about $350/mo. You do the math.

So to reiterate:

Most investors=waiting to maybe make $15k on a $100,000 home in a “nice area”, these deals come around about once or twice a month with fierce competition.

Me= picking up 5-6 deals a month making $10k-$25k per deal on homes that are under $30k. While I wait to sell them I make roughly $300/mo in cashflow.

I dont say any of this to impress you, I say it to impress upon you the fact that if a idiot like me can do it anyone can.

If you have been “thinking about getting into real estate” for more than a month, then your no longer “thinking about getting into real estate” your just “Thinking of reasons why you can’t do it”.

Eric Medemar

Thanks to both of you for your answers. It’s nice to know what people really experience instead of the “Pie in the Sky” fluff that the gurus are trying to sell. Thanks again.