Are you planning to flip or rent your property but don’t know how to go about it? If it is so, your search for the guidance ends here. Before you make an offer on a property and approach a lender, you need to be aware of the terms of engagement before getting into the deal else, you may sell the property less than the expected amount. DC Fawcett gives you the Real estate investing formula for flipping and renting properties.
Dc Fawcett Tips – Real estate investing formula for flipping and renting properties
Although you might have purchased the property earlier, investment in real estate is different from buying a house for yourself. Dc Fawcett Says that, Buying a personal house is a more emotional undertaking as you would have felt proud that you have purchased a property in your name but it is equally painful to part with it in times of emergency wherein you need money. To succeed in this field, you need to understand the basic formula and research on the market which is the most important factor. Once you have got the amount in place, flipping the property becomes easier.
Maximum Allowable Offer (MAO) helps you to determine the exact price to be paid for buying or selling the property. It is generally considered as 70% of the After Repair Value (ARV) and the investor cannot pay more than that of the after keeping an account for the cost of your funding repairs, holding costs and resale commission and costs. Below is the example
|ARV $2,00,000 Value of property after repairs|
|Loan (Cost of Funding) 7,000 Origination fees, closing fees, Interest|
|Repairs 30,000 All expenses related to renovations|
|Holding Costs 3,000 Insurance, Utilities, Taxes, HOA, other|
|Resale Fees 10,000 Realtor Fees (6%)|
|$150,000 ARV minus costs to flip|
|$ 105,600 Maximum Allowable Offer|
In this scenario, profit of $95,000 ($2, 00,000 – $105,600)
You can break 70% rule on the following conditions – Dc Fawcett Tips
- Resale fees s exempted when you get a guaranteed in-built buyer.
- When your cost of money is lower or you can access cheap cost.
The wholesaler uses this formula but adds the wholesale fees. They will set to 65% of the rule including their fees. In this case, it will be 1, 50,000 x .65 which results to $97,600 as a maximum allowable offer when you wholesale.
The other way of 70% Rule
All the investment properties that are fixed and flipped, needs a different amount of time, cash, and considerations. The 70% rule is the basic thing which builds up 30% profit margin and can be a great rule of thumb. However, the investors would look out for the property that can be easily flipped, ignoring the 70% rule.
Net Operating Income – DC Fawcett Real Estate Tips
The investors who are looking for the cash flow and the benefits of building wealth through passive rental income use net operating income (NOI) formula to derive the how much leverage is needed. The basic NOI formula is used when you purchase or refinance a rental property. NOI is calculated in the following way.
|Insurance – 75|
|Vacancy -100 (10%- this will vary with turnover rate)|
|Repairs -80 (In this scenario it is 8% which depends on the property.|
|Management -100 (10% budget to pay yourself even if you self-manage)|
Gross Operating Income $495. The gross operating income tells you how much mortgage the rental property can provide if you have to repay the loan from the profit you get on rental income. Mortgage calculator helps you to determine that.
DC Fawcett Real Estate – Tips on flipping houses
Do you watch Tv shows like Flip or Flop, Property Brothers and Love it or List it? Obviously then you have a fair idea about what you will be reading in this article. Well for those who understand and also for the non viewers who are not aware, this article is about flipping homes and guidelines for flippers by Dc Fawcett, the owner of Paramount Digital Publishing, who instructs entrepreneurs in his educational institution and also on his blog in the internet on how to grow their business and also to generate different income streams.
Dc Fawcett has years and years of experience in business and sales. After graduating from college he went to work for a company which sold websites. This job was not long lasting. He then went on to work for a concern which did dry cleaning business. But after working there for a year he wanted to be his own boss. So he started his own business . It was basically about investing in real estate. Then after doing this for many years he went on to find his own educational institution imparting knowledge on investing in real estate.
Dc Fawcett is a specialist in the craft of wholesaling, rehabbing and cash flow investing in virtual real estate areas that he does not inhabit. He analyses time and again about the various flipping techniques and offers guidelines to flippers. Amy Fontinelle had written an article about his analysis on flipping for the blog Investopedia in June 2010.
Dc Fawcett’s review on Flipping
What is flipping?
Flipping is a process of reselling homes with a profit target in mind. Flippers often buy Foreclosure homes for low rates in an auction and then end up reselling them at higher prices.
While just about any X or Y can buy and sell a property, there are risks associated with it as Dc Fawcett says. Flippers fix defects and some may even make changes in the basic organization of the home to better their chances of reselling it. But sometimes these defects involve huge amounts of money and take a very long time to mend complaints. Some defects may not be repairable. In this case the flipper faces a loss. So Dc Fawcett analyses that profit making in flipping is not ensured.
Ripe flipping areas in 2010 according to Dc Fawcett
Although the value of real estate has decreased rapidly in many metropolitan areas in the first quarter of 2010, there are 3 cities which are still very lucrative for flippers. The 3 cities are San Diego, San Fransisco and Los Angeles. San Diego offers a savings of upto 46% on foreclosure. Flippers should be wary of San Diego’s high unemployment rates and new single family homes which can lower prices sharply. In San Fransisco, foreclosure savings are around 29%. Like San Diego, San Fransisco also witnesses many new single family homes and unemployment rates which the flippers have to be careful about. Los Angeles is exhibiting a foreclosure rate of about 0.38%. High unemployment rates and new single family homes are factors to look out for in Los Angeles as well.
Dc Fawcett Cautions
Dc Fawcett analyses that flippers must face heavy competition from investors who are looking for rental properties and also from owners who are ready to buy inexpensive foreclosure homes just to win auctions or to save money.
Tips on Rental Property
Dc Fawcett – The Advantages In Owning a rental Property:
Compared to other forms of income the advantages of owning a rental property is less. However, everything goes on in the appropriate manner, you can earn a huge sum from this stream of income.
Dc Fawcett said that,You will be having the benefit of a direct income flow through a rental property. The monthly paychecks will give you an income that you get when you don’t mostly carry out any work. In cases the mortgage is lower than your sum got for rent there will be the advantage of a surplus.
All the form of investments comes with a risk and so does owning a rental property. But once you go with this, you may get some reward out of it. The property will see appreciation in due course and your equity investment is balanced. There is also the chance of getting considerable tax break. At the case of selling off your property these two aspects will boost your income. This may also happen when you refinance the property.
You will upgrade and maintain your property. The value of the property will be enhanced during this course action and this is called sweat equity. You may involve in repainting the property etc. to improve the value of the property at a reasonable financial cost. This will be useful when you sell it at a later stage.
When you are owing and having control of your rental property there is the advantage of independence attached to it. But again you will not be able to earn your livelihood through the profit gained from just one rental property. Having said that, many prudent investors own and manage a huge number of properties which in turn requires lot of commitment and hard work. But the key is that they are in a situation to act out independently.
Dc Fawcett Reviews – The Disadvantages In Owning a rental Property
Sometimes the tenants will leave the place in such a mess that you need to repaint it. You may be also put in a situation where in you have spend lots of money to make the property retain its original attraction. Sometimes the tenants will even escape from paying the rents.
Not only do you need to have some cash for buying the property but should also have some money to manage it.According to Dc Fawcett, If the tenant has put your property in a mess you may require lot of money.
The tenant is on the advantageous side when you don’t carry out the required repairs. This may be owing to your financial woes. But here then the law is favorable to the tenant only. It becomes essential to consult a lawyer who is expert in real estate to go through your lease.
There are risks for a rental property including the vagaries of the market. The property may see a depreciation, a succession of bad tenants etc.
Do clarify the questions regarding tax with your accountant.
DC Fawcett Real Estate – MAO formula for wholesaling
DC Fawcett Real estate wholesaling is one of the ways to make good money. As a beginner, you might get the questions like how to create an offer on a property that guarantees a profit. The answer to this question is you need to give a small tweak into a real estate formula using Minimum Allowance Offer which in short is called MAO FORMULA. With the help of this formula, you can make a small adjustment.
MAO formula for wholesaling what you should understand
MAO is a rule of thumb network that enables the beginner real estate investor with a formula to determine a ceiling while making an offer to the sellers owning distressed property.
DC Fawcett has made a formula as follows
MAO = (ARV * Investor Discount) – Est. Repairs – Est. Closing Costs – Your Expected Profits as A Real Estate Wholesaler and tells you what all you need to understand.
Where ARV = After Repair Value
If you are not a wholesaler, there is no need for you to deduct the wholesale profit. In MAO, the landlords and rehabbers do the property analysis with an intention to purchase distressed properties at 70% of the actual value, which means 30% for a house if it is in a perfect condition. This discount gives a rehabber a margin of fixing and flipping and gives the rental property investor has a chance to get a positive cash flow.
Dc Fawcett – Possible complications with MAO formula
The purpose of MAO formula is to keep you from paying more than what is required for the property. The same advantage becomes a disadvantage if you over-estimate the property value. You need to have an accurate knowledge about the property value and apply the local economic and financial conditions to fix the value of local properties.
The other mistake which people make is under-estimating the repairs which can prove fatal to the real estate investors. For this, you need to know the approximate time that it takes to estimate repairs.
One more difficulty of MAO while using the formula arises when the market conditions change. If the changes take place, the private lenders also revise the lending criteria downwards. You need to keep yourself updated about the developments taking place in the market. And stay on top of the things. Otherwise, you will be calling for trouble by ending up closing the deals at higher prices than the investors in your locality.
This formula can be used quickly to make an attractive offer to the seller in which you can unfailingly earn profits, as a real estate wholesaler. You need to study and research the market conditions before making an offer.
Dc Fawcett Real Estate – How To Get Decent Deal on Flipped Houses
Flipped houses is a very competitive process and the returns could be very high for investors. When you are going for a deal to purchase a home, take into account whether the house is being flipped. There are certain glaring facts that reveal the truth that the house is being flipped. The house is usually empty with no one occupying it, and few amends would have been made to make the property appear attractive.
Dc Fawcett – Some aspects of flipped houses deal
Property records will help you make out that the house is indeed a flipped one. The real estate agent comes to your aid when you take up the process. When you go through the previous listings you will get to know how long the seller retained the home, and you will also know the previous sale price.
The seller might have made vast changes to the property to make it look good. But do not be taken in by the external appearance. There might be flaws that you might have overlooked, and which spring as a surprise on close scrutiny.
Cheap finishes might have been done to the house to make it look good, but it might be something distractive such that the buyer does not make out the flaws.
The priority when purchasing a residence is to know whether it has been done with permits. Only when the building possesses permit, it can be considered legal. Documents supporting the fact that the house has been done with permits have to be furnished. When work is done without proper permit, you might be inviting trouble. It will make it difficult to obtain the financing and home insurance.
You might have done everything to ensure that the home is in good condition. Also, the house may look attractive and new, but you should not skip the process of home inspection. Certain things might not have come to your attention which a home inspector would find out.
When finding out the home’s fair market value, a real estate agent comes to your aid. Nowadays, home buyers have everything in the finger tips, but there are certain things which require the attention of a real estate agent. Although the previous sale price is a considerable factor, it is not the only thing to place importance. There are certain costs as the costs of renovation, the escrow which need to be considered.
You might need to make a comparison of the homes in the vicinity. There might be homes with similar attributes as the property that you are considering. Although it is something lucrative when purchasing a flipped house, you need to pay extra attention to details. When you meticulously follow the process, you would end up getting a great deal.
Also, make double sure of the vicinity in which you are purchasing the property. The vicinity might possess the potential growth which might not be in place yet. A good school at place, and other important landmarks would be lucrative when it comes to purchasing property in the vicinity. Carrying out the homework will give you fair idea regarding how long you need to hold the property before flipping it.
You need to update the buyer with regard to the amends that have been made to the house. Paying attention to these small details and making the house up to date would help much in flipping the property.
DC Fawcett – Real Estate Hack In Deals
DC Fawcett Real Estate
Selling the property pertaining to real estate is not as easy as selling the products and services as it has got to do a lot with the legal documents. If you are unable to handle the real estate deals effectively, it is very difficult to sell the property. Apart from hiring a real estate agent and taking professional help, you need to put efforts from your side as well. This is one of the reasons why many of them fail to close the deal. DC Fawcett gives you the tips for closing the sale.
Estate hack in deals
The first and the foremost thing are proper planning. You need to keep the necessary documents ready so it saves a lot of time when you get a good buyer. If you delay in this process, it can result in a loss. Here are some of the smart ways you can take the benefit of this information.
Keep the ownership document ready
You should know what are the documents needed for transferring the ownership to the buyer before hiring a real estate agent. The important documents are:
This is the document in which the seller transfers the ownership to the buyer. The deed differs from one state or country to another state or country. You need to submit the deeds to local country transfer so the person who is interested in owning your property will get to know that it has been transferred to the new buyer.
This document includes the valuable assets that are going to be sold with the property. It may be light fixtures, appliances, air conditioners and other assets. These are listed in the contract between the seller and the buyer.
It is similar to the sale bill, which confirms the seller’s previous ownership and declares title defects like leases, liens, outstanding contracts and other legalities which can create disputes in future.
Transfer tax declarations
It is the moral responsibility of every citizen to pay real estate taxes. The government decides the amount depending on the property’s purchase price.
Create a good impression on MLS
Many people consider MLS (Multiple Listing Source) as a reliable source. So it is important that you stand out on the MLS. There are numerous active members who have generated amazing impressions about their property deals. There are a lot of possibilities to get prospective and potential buyers. Offering something with the property creates the best impression to the buyers.
Improve your ROI through staging
Staging increases the estate value and reduces the time in the market. Many homeowners and the real estate agents resort to staging as it has become a popular way to promote a home in real estate market. Professional home stagers work with home flow and make necessary changes to make it presentable to potential home buyers. Hence it adds the estate value which increases the ROI.
Invest in property investments
The look and feel of the property is more important to impress the prospective buyers. All the parts of the property should be in a good condition which reduces the buyer’s cost of renovation.
DC Fawcett concludes that Flipping and renting properties are good in their own way for the investors. Managing and owning rental properties is one of the several alternatives and it may suit few people. You have to have cognizance of your financial position and your inclination to take up this alternative while moving on with this move.
Dc Fawcett, the founder of the Virtual Real Estate Investing Club, gives some sound advice regarding investing money in rental properties. One could get a fair idea regarding the real estate scenario by going through his blogs.