"Fix And Flip - The Formula"

Making money with a "fix and flip" property is a great way to make money in real estate. However, it isn't about repairing drywall and planting flowers. It's all about how you do the numbers.

People often buy and sell a fixer-upper without a definite plan. They buy a house, fix it up, then add $10,000 or $20,000 onto their costs. They then put the house up for sale at this price.

Have you ever bought a house according to what the seller has into it? Of course not. You look at similar houses to determine the value. If you have $110,000 into a fix-and-flip project, and similar homes are selling for $105,000, how much will you get? It has nothing to do with what you've spent, does it?

The Fix & Flip Formula

1. Determine the after-repair value of the house you're looking at. Get an appraiser's help, or look at what similar houses have actually sold for (not asking prices). The price it's likely to sell for is going to be your starting point.

2. Calculate costs: closing fees, loan fees, document prep, homeowner's insurance, title policy, repair costs, interest on loans, property taxes, sales commission, fees, title policy, etc. You want projected costs of all four categories: buying, improving, carrying, and selling. Subtract all costs from the expected sales price.

3. Subtract a profit that makes it worth the effort. Now you have the highest price you can pay. You have to walk away if you can't get it for this price or less. You'll offer thousands less, of course, to give yourself negotiating room.

A Fix & Flip Example

You've found a fixer-upper, and determined you can get $98,000 for it when it's done. Buying costs will be $2,000. Repair estimates add up to $8,000. Carrying costs will be $2,500. Sales commission and other closing costs will be around $8,000. You figure in $1,500 for the "unexpected." For you effort, you want a $10,000 profit.

When you subtract all of that from your expected sales price, you have $66,000. That's the most you'll pay if you want a safe real estate investment. Offer $61,000, and walk away if you and the seller can't settle on something under $66,000.

You always start with the eventual sales price and work your way back. This is the right way to safely do a fix and flip.

Article Source: http://EzineArticles.com/?expert=Steven_Gillman

 

                       

"Net Worth - Your Financial Value"

What is net worth?

The amount by assets exceed liabilities. This term can be applied to companies and individuals.  For a company, this is known as shareholders' (or owners') equity and is determined by subtracting liabilities on the balance sheet from assets. For example, if a company has $45 million worth of liabilities and $65 million in assets, the company's net worth (shareholders' equity) is $20 million ($65 million - $45 million).

Alternatively, let's say an individual has only three assets, $100,000 of common stock, $30,000 worth of bonds and title to a $190,000 house. Conversely they have only one liability, $150,000 owing on their mortgage. The individual's net worth would be $170,000 ([$100,000 + $30,000 + $190,000] - [$150,000]).

Real estate investors, like everyone else, should be aware of their net worth. This value is extremely important because it allows us to gauge if our complete financial value is increasing or not. The average American doesn’t know how to save money, and typically has a very low net worth; many people even have a negative net worth! While it may seem obvious to many of us, the average guy simply can’t put a cap on wasteful spending (going out for drinks, buying cars that lose value, etc.) in order to buy assets that actually go up in value (like real estate, securities, etc.), and thus increase their net worth.

Simply put, net worth is your total assets minus your total liabilities.

How to Determine Your Net Worth:

Your Assets

The first step in calculating your net worth is to determine the total value of all of your assets. Add the value of the following:

  • Liquid Assets: cash, checking & savings accounts, money market accounts, CDs, savings bonds, cash value of insurance policies
  • Securities: (use current market values) stocks, bonds, mutual funds
  • Non-Marketable Investments: annuities, IRAs, tax shelters, pension plan equity
  • Hard Goods / Durables: cars, bikes, motorcycles, mobile homes, furnishings, furniture, electronic and other equipment, collectables, jewelry, furs
  • Loans Receivable: money owed you
  • Real Property: house, condo, rental property, commercial property, land, other real estate

Your Liabilities

Tally all of your liabilities . . . I know this part is much scarier for many of us!

  • Mortgages & Home Loans: Determine the balances owed on these loans
  • Credit Installment Plans: Determine the remaining balance on payment plans for vehicles, furniture, equipment, mobile homes, home improvement loans
  • Cash Loans: the value of any cash loans outstanding
  • Insurance Policy Loans: any loans against your insurance policy
  • Any Notes Payable
  • Taxes Due: on income & property

Now, just subtract the liabilities from the assets and you’ve got your net worth.

 

                       

"Ten Tips For Landlords"

Simple suggestions to help your landlord or property management business run smoothly.

1. Screen tenants.
Don't rent to anyone before checking credit history, references, and background. Haphazard screening and tenant selection too often results in problems -- a tenant who pays the rent late or not at all, trashes your place, or lets undesirable friends move in. Use a written rental application to properly screen your tenants.

2. Get it in writing.
Be sure to use a written lease or month-to-month rental agreement to document the important facts of your relationship with your tenants -- including when and how you handle tenant complaints and repair problems, notice you must give to enter a tenant's apartment, and the like.

3. Handle security deposits properly.
Establish a fair system of setting, collecting, holding, and returning security deposits. Inspect and document the condition of the rental unit before the tenant moves in, to avoid disputes over security deposits when the tenant moves out.

4. Make repairs.
Stay on top of maintenance and repair needs and make repairs when requested. If the property is not kept in good repair, you'll alienate good tenants, and tenants may gain the right to withhold rent, repair the problem and deduct the cost from the rent, sue for injuries caused by defective conditions, and/or move out without needing to give notice.

5. Provide secure premises.
Don't let your tenants and property be easy marks for a criminal. Assess your property's security and take reasonable steps to protect it. Often the best measures, such as proper lights and trimmed landscaping, are not that expensive.

6. Provide notice before entering.
Learn about your tenants' rights to privacy . Notify your tenants whenever you plan to enter their rental unit, and provide as much notice as possible, at least 24 hours or the minimum amount required by state law.

7. Disclose environmental hazards.
If there's a hazard such as lead or mold on the property, tell your tenants. Landlords are increasingly being held liable for tenant health problems resulting from exposure to environmental toxins in the rental premises.

8. Oversee managers.
Choose and supervise your property manager carefully. If a manager commits a crime or is incompetent, you may be held financially responsible. Do a thorough background check and clearly spell out the manager's duties to help prevent problems down the road.

9. Obtain insurance.
Purchase enough liability and other property insurance. A well designed insurance program can protect you from lawsuits by tenants for injuries or discrimination and from losses to your rental property caused by everything from fire and storms to burglary and vandalism.

10. Resolve disputes.
Try to resolve disputes with your tenants without lawyers and lawsuits. If you have a conflict with a tenant over rent, repairs, your access to the rental unit, noise, or some other issue that doesn't immediately warrant an eviction, meet with the tenant to see if the problem can be resolved informally. If that doesn't work, consider mediation by a neutral third party, often available at little or no cost from a publicly funded program.

If your dispute involves money, and all attempts to reach agreement fail, try small claims court, where you can represent yourself. Small claims court is good for collecting unpaid rent or seeking money for property damage after a tenant moves out and the security deposit is exhausted.

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