Where Are The Really Good Real Estate Investment Deals?

Where can you find the most profitable rehab real estate investment deals?

No two deals are the same, that’s for sure!  Every rehab itself is different with different problems to solve.  So, in describing a typical deal, you have to look at the spread involved.  The spread is the different between what you can buy the house for and what it’s value will be when it’s brought back up to standards.

The next big question is, “What is the rehab going to cost.”

For instance, if a property in a market has a $25,000 spread between what you can buy it for and what you can sell it for (the as-repaired appraised value), it’s a “maybe” in my book depending on how much rehab it needs.  If it needs much, you would probably pass unless some external factor makes it a good buy, like the neighborhood.  In other words, if it needs much rehab, you’d have to be convinced enough to put some of your own money into it.

You should typically look for houses with a $30,000 spread or better.  You have to decide for yourself, based on values in your area and what is the minimum you want to make, you have to decide what spread you’ll be happy with.

So, what is a rehab real estate investor’s “homerun?”

Homeruns occur at the outer edge of what is typical.   Most homerun deals have occurred one of several ways.

• The spread is stellar.  Let’s say the spread is $45,000 and the rehab is a manageable $5-10,000.
• The spread is good, but the rehab is very light.  Wham-bam, you’re looking for tenants within days of closing.
• The cost is exceptionally low for a given area.  Sometimes the spread on paper will not be anything to get excited about, but the property has a huge lot, extra bedrooms, or is located in an area that is in serious demand.
• There is NO rehab, and the spread is sufficient that you can buy it with none of your own money.

It’s rare to find a NO rehab deal.  Here is one of those examples:  This house had been recently rehabbed, clean and didn’t need a thing!  This was a homerun just due to the ease at which a property could be added to your inventory!  The spread wasn’t great, in fact, you had a local hard money lender make up a story about being out of money because he thought the spread was too narrow and didn’t want to lend on it.  He wrongly assumed there was a significant rehab.  This could be considered a homerun because you could buy this property, change the locks, put out a sign and have it rented within two weeks.  Mind you, this is a beautiful well-built brick/block home in a great neighborhood.  Cost to y9u…nothing.  This house, for one investor, was one of their best cash flows month-to-month.

The point here is to give you an idea of what kinds of homeruns rehab real estate investors look for.  But, here is a key point…

It’s truly NOT worth my time, or yours, to wait around for the homeruns.  I firmly believe that these kinds of homerun deals come about by being an active investor.  Rehabbers that keep 1-2 projects going at all times, get calls from wholesalers with great deals.  Personally, you make the best buying decisions decisions with what you have among the properties brought to you when you are in “buy mode.”  Some of these turn out to be homeruns, some don’t.

If you wait around for only the homeruns:

• You would waste precious learning time.  Since there is no substitute for experience, you should want all you can get!
• You would lose money over the long run as a buy-and-hold investor.  If I’m buying and rehabbing with little or none of my own money anyway, it doesn’t make sense to wait around for homeruns if you can add properties to your inventory that fits your investment criteria. If you’re in the buy and hold business, the important thing is how much property can be controlled with as little money as possible.

Question:  Is it better to have $1,000,000 worth of property appreciating or $200,000?

Hitting a homerun in rehab real estate, and anything else, requires these two ingredients:

• You’ve GOT to be “in the game.”  By this I mean you have to have prepared in advance for your turn at bat.  In the rehab business, this means you have enough knowledge to get started, you have a decided investment criteria, you have your money source lined up, and you are looking for property.
• You are “swinging.”  In the rehab business, this mean you are buying property, rehabbing, learning and turning.  It’s not enough to merely stay on the sidelines.

Let me say that again…

IT’S NOT ENOUGH TO MERELY STAY ON THE SIDELINES.  YOU NEED TO STEP UP TO BAT AND KEEP SWINGING!

Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees that teaches the art of real estate investing.  His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in 6 years.  Prior to that, Bill and his family lived in Haiti for 12 years as missionaries serving orphaned, abandoned and at risk children.