What type of houses should you buy?

Ok, if you have been following the blog I have been doing of late, it is kinda’ taking everyone back to the beginning. So for the people that are following here we go;You have thought about where you want to go and where you want your business to take you. When doing this you set goals for yourself that are reaches but still attainable at the same time. These goals are quantified and measurable, so you know what to do on Monday and where you are at in your business. You know how many pieces of mail to mail out each day. You know that you have to drive neighborhoods to get your leads. You are implementing a marketing plan daily. You get motivated sellers calling you.You are setting up appointments to meet with these sellers. You are going belly to belly a few times a week with these motivated sellers and honing your skills. You know your numbers in your business; how many leads it takes to set an appointment, how many appointments to get a buy. You understand the paperwork and have a bulletproof contract to use when making your offers.You understand the types of deeds in your state, and you have formed a company and are using your own leases in your business.You are moving forward in your business, but here are a few other things to think about as you get going;What types of houses should I look for specifically?What makes these houses good for me?So let’s start with the types of houses you want to buy and that you should look for. There are many different houses in every market, in fact there markets within markets. But I always advise my students to start in the middle. What I call the 3 legged stool theory. No matter how long or short the legs of a three legged stool are, you will still be able to sit on it. I use that to illustrate the following items that are capable in our business, wholesale, retail and rental. If you purchase a super high end house you can fix it and retail it, you might be able to wholesale it, but you will have a problem renting it and making any money (cash flow). On the opposite end of the spectrum, if you buy a house in the hood (for lack of a better phrase) you can easily cash flow it, you may be able to wholesale it if you know another junk dealer, but you will have a hard time retailing it. So just like in the story about the 3 bears, you a need houses that are just right. So the house that is just right is one that I like to back my way into. First figure out what the median price is for the houses in your area. Once that is established take 60-100% of that price and that is going to be the best target area for you to buy houses in. These are the ones that you can wholesale, retail, or rent and still make money in most markets. You will find that where you are going to be most successful at in the market is going to be that “less than” part of the price range. That is the part of the market that is normally under the most transition and has a chance of having equity that you can negotiate for. Also in this price range you are going to find the houses that are most affordable for your first time homebuyers which are your retail and good rental targets. These are also the houses that other investors like to do the same with and will buy off of you wholesale. When you figure out what that price range is it is pretty easy to find those areas of town and isolate them in your marketing plan. You can do a mailer to a whole neighborhood, or a particular zip code. Or you can drive those areas specifically looking for houses in need of repair. They will be easy to see; peeling paint, broken windows, high grass, general disrepair. You can also look for meters being out of power boxes, this is a easy sign of vacancy. This is also going to be an area that will qualify price wise for FHA financing for your buyers as well. This means the working class neighborhoods of your town are your target. My philosophy is that I would much rather sell everyone their first house and nobody their second. Once good thing about this price range is that your average person in your town can afford them. So the other way to figure this out is by taking the average income of your town and work your way back to the house that they can afford as well. For example if the average wage is 50k, the FHA guidelines are 25% for PITI so $12,500 per year in payments so about a thousand a month is the median, and you want to be 60-100% of that number as well. Given the rates of today $1000 per month gets you about a $130k house so you want to look at $70k-$130k houses. You obviously will find the sector that is the best mover for you, and then you just need to target that. This house that you have now targeted is your sweet spot for your buying. The key here is to stay in that sweet spot and do not venture out from there. So let’s talk about that elephant in the room that I am sure everybody is thinking about right now. What about the nice cool big houses? or what about the governmental low end programs that you can sell to people in the bad neighborhoods? Should I ALWAYS look for cash flow? These are general things, but the key to me for my students has always been to keep it simple in the beginning and diverge from there latter on. Yes there will come a time in your business where you feel good enough about yourself to venture out and do a high end house, or other types of products. This is ok, at some point but don’t start out doing these types of houses, keep it simple till you get your legs under you. So can you buy a house with negative cash flow and it make a good investment? Of course you can, but that is not a good proposition when you are just getting going in this business. There are a million ways to make money in real estate, but keep it simple when you are getting going and it makes a lot more sense in the long run. Next we will get into financing to run your business………………………………..