With prices falling in many markets around the country, some investors are left wondering if it’s still possible for them to turn properties for quick profits. We want you to know that you absolutely can, but it’s critical that you do your pre-purchase analysis of the property very carefully. Make sure that when you look for comparables to determine how much you’ll be able to eventually resell the property for that you realize that yesterday’s sale prices may be higher than tomorrow’s. In other words, you need to anticipate that your resale price will be a moving target and plan accordingly.
In a soft market (a buyer’s market), it’s especially critical that you also don’t price your property too high when you list it, either. Speed in reselling is critical. You need your property to represent a better value for the money than anything else on the market, thereby attracting a serious buyer quickly. When determining the price at which you’ll resell the property once any needed renovation is complete, you should ask yourself, “What price would it take to sell resell this property within 2 days of hitting the market?� It’s far better to take a smaller profit quickly and easily than to wait and worry and labor to get an aggressive asking price (if you can get it at all) once all the costs are tallied and lost time is taken into account.
The reason that so much emphasis is placed on your resale cost is that it is by far the MOST important part of your analysis. That isn’t to say that other parts aren’t important or can be overlooked, but if you don’t have a good resale price (based on the information above) you’ll end up way off course, possibly holding onto a property that you’d rather be done with and never see again.
Once you know the resale price that you’d like to use, you’ll simply start to subtract or back out your various anticipated costs of acquiring, fixing, holding, and reselling the property, along with an amount that you’d find acceptable as a profit, to determine what your maximum offer price should be to the seller. Most uninformed and inexperienced investors go about things in the opposite order by first making an offer on the property and then trying to justify a high resale price for the property and manipulate their rehab expenses so they’ll hopefully be left with some profit in the end. Let me assure you … that is a recipe for absolute disaster in today’s markets.
If you begin with the end in mind and are wise in your approach to dealing with soft markets, you’ll find that you can navigate them successfully and very profitably.
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