If you are investing in real estate you must understand the relationship between price and value. I want to share with you what calculations I do to figure out that difference and how I apply the strategy:
- My buy and sell strategies
- My buy and hold structures
- The business models I offer my investors
Under the “price” consideration I calculate:
- How much money will I have to pay to purchase the property
- How much money and effort will it cost me to rehab the property, including other fees to reposition it and get it to perform to its highest & best use
- How much time will it take to get it to a level where it can be resold or rented
- Then, I compare each of the options to alternative assets and opportunities
Under the “value” consideration I calculate:
- After spending all of the above to get the property to its highest & best use, how much income will that property bring in each year and over how many years?
- What would be the incremental effort, and ongoing cash expenses required to keep the property performing (Monthly operating expenses and periodic capital reinvestments)?
- At what price would I be able to re-sell it once I finish the repositioning vs. what value would the property have if I held on to it for income over a period of 5 years, 10 years or longer?
- Then, I try to compare the long-term value of that property vs. the price (based on time, money and effort) that I would pay, and I compare that to other income producing assets.
If I am buying to resell (flip) the property, then here are the factors I would consider that combine the price and value calculations:
How much time, effort and money will it take to:
- Find a property below market price and purchase it
- Improve the property to increase its value
- Resell the property (closing costs etc.)
The next step is to figure out:
- What is my expected average profit on each deal (percentage wise: i.e. 20% annualized)?
- How long would it take me to find the next deal (down time with no returns between deals, cost of the money)?
- How much would my yearly returns be after all the time, effort and money spent on all the deals I could do in one year?
- How would that compare to other business models that would require a better balance between my resources (time, money and effort) at that particular time in the market and in my life?
After doing all these calculations, and after many years of experience in the real estate business and profit sharing through my various real estate funds and educational companies, I have created the safest and most profitable business model for students/investors. If you wish to flip properties with no investment of your time or effort— and down time on your money, then my business model is a perfect fit. Your money will produce returns from day one when you acquire the properties. It is a “done for you” model to buy and hold, as well as flip with cash flow of 9% per year, and an approximate upside of an additional 30% +/-. Right here right now I have a business model that produces for my students/investors a hands-off, hassle free, secured return of approximately 40% per year. That is true “TURNKEY”.
Watch my next blog for details to go to www.SFIFundDirect.com
CEO SFIFund Direct