Buy or wait......? - Posted by Andhy

Posted by Natalie-VA on March 04, 2010 at 14:08:26:

Hi Andy,

I have been buying and selling (mostly flipping) for over 10 years. I, personally, cannot buy a property for 110k, sell it for 130k, and make a profit.

First off, I’ve never met a property that didn’t need repairs to sell it at retail. Secondly, I don’t think you’re considering all of the extra costs involved. You should factor in your closing costs when you buy, your closing costs when you sell, carrying costs for each month you own the property (insurance, taxes, interest, lawn care, utilities, etc.), real estate commissions, closing cost assistance for your buyer, and more.

In my area, those expenses in that price range would run me about $15,000, and I save half the commish, since I’m a broker.

Hope that helps.


Buy or wait…? - Posted by Andhy

Posted by Andhy on March 03, 2010 at 21:49:55:

I’m about ready to sell my last rental, a duplex. After selling this property i’ll be armed with about 240k in cash to go out and find a DEAL on another property.

I told myself the next property I buy I would not pay more than about a 72 gross rent multiplier. I dont feel I can generate adequate cash flow if I pay more than this.

I’ve made a few all cash offers at about that 72 gross rent multiplier range over the last few months and have been shot down cold on every one.

Here’s an example of one.

130k; current market value after repair based on comps

91k; this was my offer taking into acount cost to repair and valued at a 70 gross rent multiplier(1300x70)

offer shot down cold, no counter

Had I got this property at this price, I would have a property that meets my cash flow requirement(70 GRM) and has an instant 39k in equity if I wanted to turn around and sell it.

I told myself I would not buy more property if it did not meet my cash flow requirement. But, with that being said, i’m afraid i’m passing over flip oppurtunities because they dont meet my cash flow requirement.

Using the above example again,

130k; current market value after repair based on comps

110k; i possibly could have got bought this property for this price taking into account repairs and flipped it making 15k-20k,

The problem with this scenario is that i’m violating my cash flow requirement of requiring a 70 GRM. I’ve heard from many successfull old timers say that they dont buy unless it cash flows and that is stuck in my head.

Even thought this scenario doesnt meet my cashflow requirements, I feel i’m passing over an easy 15-20k profit because i’m stubbornly sticking to my cash flow requiremnt and not making the higher offer.

Would those more expereinced than I take a little more risk, pay the higher price and flip for some quick cash OR stick to your guns, pass over these deals, and wait for the deals that both cash flow adequately(70 GRM) and allow for instant equity.

Hope this makes sense. I’m rambling at this point. I’m done.