The 3 Numbers Every Investor Should Know Before Buying
March 21, 2016
Real estate investing is a numbers game. Knowing the following three numbers will help ensure your next purchase is a sound investment.
1. After Repair Value - The after repair value is simply the value of your home subject to any proposed repairs. Making repairs to a property inherently increases its value. To calculate how much your proposed repairs may increase your home's value you must find comparable homes that have recently sold and were in a condition similar to your home's condition after the proposed repairs have been made.
2. Repair Budget - Making and sticking to a repair budget is essential to a successful investment. Your repair budget should reflect all repairs necessary to make your home's condition comparable to those properties in which you used to determine your home's ARV. Real estate investors typically move fast so, in order to stay competitive it may be necessary to create a "cheat-sheet" of repair cost. We suggest using round estimates for large items like kitchens, bathrooms, paint, and flooring.
3. Purchase Price - Determining a purchase price, or offer price, is essential to making a sound investment. Offering too low may result in being out bid and offering too high can result in a reduced profit margin. We suggest first determining your desired return and then subtracting that return and any associated costs from the ARV. The result should reflect you initial offer price.
Remember investing is a numbers game so; make sure to keep these three numbers in mind when analyzing your next real estate investment opportunity.