Accepting Cheap Deals To Retain A Market Niche Is Not A Healthy Business Practice For Investors
However the good deal is, I strongly abhor the tendency some investors have of settling for cheap deals , and that is why these days I always turn my back to many sales, specially reconstructed or reconditioned houses.
I simply quite some offers monthly, but because of the financial pressures I experience, and the cost and time elements involved in the transaction and negotiations with the contractors, I accept very few of them . Some of the offers I get are not worth the stress and headaches, nor do they compensate me regarding payment. The returns they have are negligible. During such economic hard times, any investor caught on the wrong end of a deal faces doom. So you have got to be very careful about the kinds of deals you are putting your money on.
Not so far back I had a chance to pick a deal at $155k in an ideal part of town, but I did not go through with it because of the intervening circumstances that followed. Although the house was 1,600 sq., another much smaller house which was only 1,050 SQ. Feet fetched $275k. The deal I was considering was located on an old street , so I intended to ask for a discount on the square feet. When I talked to the realtor, he confirmed my assertion and reduced the cost to $325k. I was quite impressed with the outcome, and I nearly took the deal, but the thought of the stresses and regrets that would follow if I made a mistake dissuaded me from taking the offer
Simple math on a property deal costing $325k can bear me out.
* $19,500 would be a 6% commission
* $ 7,350 would be a 5 point return to my lender on the purchase price.
* The closing costs would be $7k on the conservative side.
* Add $1600 for the cost of insurance
* The cost of rehabilitation would be $90k
* The interest on the borrowing at 15% for a period of 5 months would be high.
Although November is a bad time to put up property on the market, that is when I intended to do so, but that would not give me the 20% I always expect from the rehabs I do. So instead of making $60k, I would stress myself out to make only $35k. I did not want to inconvenience myself in that way, so I declined the deal, In the market, there are better deals in which I can risk a lesser amount but get the same work done and still end up making profits. I opted to take the smaller offer. In the outskirts of Charlotte I recently picked a smaller offer at $140k and pumped in an additional $25k, but I ended up selling it at $230k. The transaction and rebuilding took just two months. After deducting all the expenses, I made a profit of $39k. Now more than ever, I am interested in purchasing houses on the outskirts of the town of Charlotte. I avoid bidding wars on deals, but I act as though the deal people ignore the best. The way out is to avoid deals that have no sufficient returns. Wars on bidding will only kill the profit end of your business.