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Understanding Home Ownership - The Beginning

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  1. Module 1: Understanding Mindset
    9 Lessons
    |
    1 Quiz
  2. Module 2: Understanding What you want your money to do for you?
    6 Lessons
    |
    1 Quiz
  3. Module 3: Understanding The Types of Real Estate Investments
    7 Lessons
    |
    1 Quiz
  4. Module 4: Understanding The Resources
    11 Lessons
    |
    1 Quiz
  5. Module 5: Understanding The Finance
    15 Lessons
    |
    1 Quiz
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Your Profit

At some point, you are going to have to determine what the minimum amount of profit is that you are willing to work for on a particular rehab. This is often determined by a number of factors:

  • Price Point:
  • Experience:
  • Amount of Risk:
  • Amount of Time:
  • Price Point:
    Most investors understand that rehabbing and reselling a $100K house is unlikely to generate as much profit as rehabbing and reselling a $500K house. Because the amount of cash required to do these types of deals and the risks involved with these deals are greater, the profits tend to be greater as well. While many investors might be happy with a $15K profit on a $100K resale, these same investors might require a $50K profit on a $500K resale.
  • Experience:
    New investors are likely to settle for smaller profits than more experienced investors. For investors doing their first deal, a $5K profit might sound like a huge accomplishment. But, once these investors realize the amount of time and energy involved in flipping a house, they likely won’t want to settle for such small gains.
  • Amount of Risk:
    Obviously, projects that incur greater risk should also have opportunity for greater reward. While an investor may be happy with a small profit on a condo that only required new paint and carpet, that same investor is going to want to see the possibility for much greater profits if there is risky foundation or waterproofing work that needs to be done. Because these major repairs run the risk of budget and schedule overruns, extra profit should be built in to compensate for those risks.
  • Amount of Time:
    Most investors will demand higher returns for projects that take several months than they will for projects that only take a couple weeks. Not only does the extra time decrease the overall rate of return, but the investor likely will have to invest a much larger number of hours, so the higher profits will be needed to maintain an hourly wage.

Estimating Rehab Costs

The most common question I get from new investors is, “How do I accurately estimate rehab costs for a flip project?” Unfortunately, the answer to this question isn’t simple, and for more investors, is the single biggest roadblock standing in the way of them feeling like they are ready to invest. While there is no magic bullet to estimating rehab costs, there are several options at your disposal, and the one thing I can promise you is that the more rehabs you do, the easier it will get.