If you want to be very successful at real estate investing and edge out your competition, you simply must invest in your marketing to find houses and to find buyers. Count on spending $1500 a month for every deal per month you want to close. You’ll spend more in a highly competitive market.
The other fact to know is that it takes several months of ongoing steady marketing before you start to see any results. As you can see, it doesn’t take long to rack up a $10,000 or greater marketing tab before you ever see your first dollar in revenue.
What many investors do is try to work with a minimal budget. Sure, you’ll eventually get results, but you’ll probably give up long before. That’s why I recommend you start by generating new cash first with a rehab.
I know this sounds a bit counter-intuitive: How can it require less funds to purchase and renovate a house then to implement a marketing campaign? The answer is it doesn’t. The difference is that with a rehab, you have an asset that can be leveraged.
Margie and I learned this on our first rehab: without using a bank you can fund 100% of your project costs including purchase, rehab, and holding. That first rehab gave us the funds we needed to really grow our business. Within a year of that first deal, we had both at age 37 “retired” from our corporate jobs, and went into investing full time.
Is this still a good strategy today? Well, let’s look at one of my mentoring Client’s rehab he just closed on. He projected the After Repair Value (ARV) to be $280,000 – a subsequent appraisal came in at $290,000.
He purchased the house for $125,000 which he found by scouring the internet. He is putting $62,000 into repairs. Buy-Sell-Hold costs are running him about 17% which is $47,000. That leaves a Net Profit of $46,000 on this one deal – and that is if he only sells at $280,000. I also think he over-estimated his repairs.
He funded the bulk of the costs with a Hard Money Loan; and the rest with a Private Money Loan. Zero out-of-pocket costs, and he’ll have well over $40,000 to fund his business and have money left over for himself.
I’m guiding him through the rehab to ensure that the finished product will be the nicest house on the market so it will sell quickly. Remember, don’t worry about Day on Market (DOM). Buyers purchase based on the following Value Proposition:
Price + Amenities = Value
When a house has the nicest amenities and it priced at the market, buyers will perceive it to have the highest overall value and will flock to that one first.
For those that believe great deals don’t exist in this market – this is proof they do. Frankly, my Client found an exceptional deal. But even if you find one that yields just $25,000 or even just $15,000…imagine the amount of marketing and the number of subsequent deals you’ll find and sell to investors.
Starting with a rehab is an excellent way to rocket your success!
Expect abundance,
Lou Castillo
