There is one key thing that I always want to hear when one of my coaching clients calls me up to talk about how to structure a deal they are considering. I want to hear why they are trying to buy that property and specifically what they plan to do with it if they close the deal.
The reason you need to make plans for a property before making an offer is that there are four types of houses: bank owned houses and foreclosure properties, houses you don’t personally want, houses that you can fix up and sell retail, and houses you’re going to hold long term as rental properties.
For the first type you’re probably going to have to come up with the cash or use an institution to fund your deal. You’re also going to have to factor in repair costs to make sure you can actually make a profit on the deal. Typically I don’t look for these kinds of deals because I don’t want to have to use an institution for funds. There are better ways to finance your deals.
For houses that you wouldn’t personally want to live in, they are perfect candidates to flip the purchase agreement to someone who does want it. The secret to being a good wholesaler is making sure you take care of the buyer and set them up to make a profit. You have to factor in all the costs involved to make sure the buyer can make money too, if you don’t you’re not going to be in the wholesaling business very long.
With houses you plan on selling retail, again, you must factor in repair costs and holding costs into the deal. If your numbers don’t work out, that property is not one that you want to buy.
The last type of property is calculated differently than the rest. You base what you can pay for a property on the rent you can get from it. It doesn’t matter what the seller wants for it, the house has to pay for itself. Paying more than what the house can generate is not how you and your family can get ahead.
For each property type, it’s vital to be realistic when calculating your costs and running the numbers. You can’t be out to lunch on your numbers or you’re going to run into major problems down the road. The most important part of the plan is calculating how much you can afford as a payment, since every rental property is a business unto itself. You have to get the price that will work for you, or the terms. If you can’t do that, you don’t buy that property.