I think real estate reality shows have hurt more investors than any of us can understand in the last few years. The thrill and excitement of seeing a few regular men buy real estate for $ 100,000, repair it, and (maybe) sell it for $ 125,000! “Wow, can you believe these guys made a $ 25,000 profit from repairing their homes ?!” (I always find it interesting how these shows don’t show homes for sale. Masu … Normally, the open house scene and the estimated selling price and profit figures will not be displayed.)
Idea Turn the house In recent years, it has become a mainstream phenomenon. However, what you don’t really see on reality shows is a breakdown of all the costs associated with flipping a house and the actual number of nets at the end of the day. When you see a $ 25,000 “rate of return” flashing across the screen at the end of the show, the average viewer usually doesn’t understand the cost absorbed from that 25K.
If you’re a member of BiggerPockets, you may already know that investors have purchasing, financing, holding, and selling costs. After all, what looked like a $ 25,000 profit may actually be much less.
Here are almost all the questions that an experienced real estate investor had to ask himself when analyzing real estate. “”Should I just wholesale this property or should I get a chance to repair it and sell it?“
I am still working on this question every day.But I know some very successful investors who finally decided they were better wholesale All, rather than taking additional risks by selling fixed in the retail market.
Take a closer look at costs
In the above example, suppose the gross profit based on Sell Price – (Purchase Price + Repair) was $ 25,000. At first glance, this may seem like a good deal. However, additional costs not explained in the show are totaled as follows:
Purchase completion cost: $ 1000
Hard money origination fee: $ 3,000
Hard money interest (3 months): $ 4,500
Insurance: $ 500
Utility: $ 500
Real Estate Sales Fee: $ 7,500
Closing Cost Contribution: $ 2,500
Additional inspection and repair: $ 1500
= = Total additional cost of $ 21,000
So, taking into account all the costs that weren’t revealed at the show, could the actual profits be only $ 4,000? !! This may be a bit exaggerated, but not always. Many new investors do not calculate all of the purchase, sale, and holding costs associated with a transaction.
You can usually focus on the approximate purchase and selling costs, but the biggest unknown is the cost of ownership. What if it takes 9 months to sell your property and your interest expense is on the roof? What if you own real estate during the coldest months of the year and your utility bills are much higher than expected? What if my house is destroyed or the water pipe breaks while the house is vacant?
Investors who have turned over a sufficient number of homes know that all of these risks are very real. I had a lot of assets that looked like slam dunk for years, but eventually I lost money or just broke.
Over time, many investors will determine that the hassles and risks associated with buying, modifying, and reversing are not worth it … and in many cases they are probably correct. Let’s also assume that in the above example, we can reduce some of these costs and withdraw an estimated net profit of $ 10,000.if I could Wholesale If I could make $ 7,500 for that same property without the risk of buying it or flipping it over, I’m sure I would wholesale the house all day long.
Don’t get me wrong, I don’t insist that the flippers of every house become a wholesaler.I absolutely believe there is Make a lot of money at the flipping house.. But the more homes you turn over, the more attractive wholesale you will be when you can make money quickly without the hassle and risk associated with turning over.
I would like to ask everyone, is there anyone who changes from flipping to wholesale? Or are there many people like me deciding whether to wholesale or turn over on an individual property?