STRAIGHTFORWARD REI RESOURCE GUIDE Real estate investing is purchasing properties or putting them under contract. These properties will either be paid with cash or financed by yourself, investor, or a buyer/homeowner. These properties can either be assign & flip; buy, fix & flip; or buy, fix & hold. Assign and Flip Assigning and flipping a property is usually done without actually purchasing the property. You will be putting the property under contract and then assigning your rights of the contract over to another investor for an assignment fee which is called wholesaling. The assignment fee is your share for finding and contracting the property. You will not fix up the property and the investor will purchase it as-is. Your job is to find a property at a substantial discount and then mark-up the price to accommodate your fee which should still give the investor enough equity to be able to get their profit after fix-up. Depending on the amount of our assignment fee ($6,000 or more), you may want to do a double close because the buyer may have a problem with you receiving a large fee for very little effort. You will take all of the contracts and any earnest money over to the title company. They will then process the information for the closing day. On the closing date every party will have to sign then the seller will receive their check for the property and the buyer will receive the title for the property. The left over funds will be sent to you in a check. A double close is when you (the wholesaler) purchase the property from the seller (A-B close) and then the investor/buyer purchases the property from you at a higher purchase price. Whether or not you are doing an assignment or a double close these transactions will be taken place with a title company or a real estate attorney. You will receive a check for the difference of the purchase. If you are able to receive the funds from the buyer before you close with the seller, which would prevent you from having to come up with the funds to complete the transaction. If that is not possible you will need to either have your own funds to purchase the property, a hard money lender, private money lender, or use transactional funding. Hard money lenders are short term, high interest rate loans—often based on the property/deal itself, rather than the credit of the borrower. Private money lenders (individuals) are usually much cheaper than hard money lenders and you are able to be more flexible with the terms because these lenders have their own capital to invest. Buy, fix & flip Buying, fixing and flipping is putting a property under contract, closing on it with the seller, fixing it up, and then putting it back on the market to sell or a larger profit. The funds can come from your own savings, financing, 50/50 partnership (where you will find a person to provide the funds while you do the work and you split the profits), and private & hard money lenders. You may choose to market the property yourself or list it with a Real Estate Agent. With this method of investing you should consider the following: 1. It’s not as FUN as it looks on TV 2. Estimating the rehab costs and allowing for unexpected repairs
a. If you estimated the repairs to be $23,570 then your budget should be $25,000 3. If you will be doing the work yourself or contracting it out a. If you hire a general contractor, you’re dealing with one person and they are going to run the schedule of your job. b. You can save about 15% to 20% by doing it yourself but you will have to deal with the electrician, the painter, the carpet guy, the roofer, the window guy, the handyman, the tile guy, the appliance installer, the plumber, etc. 4. Planning out the details of your rehab 5. Determining where the funding will come from Buy, Fix, & Hold Buy, fix and hold is purchasing a property for passive income (landlord). You will purchase a property from a seller, fix it up, and then rent it out. Leasing would be the best term to use when presenting it to a possible renter. People usually will take better care of the property when the lease term is used. When going this route, you will need to consider all of the expenses of the repairs, monthly expenses and whether or not you will have anything left over. Below is a simple table I use to determine whether or not a property will be profitable hold: Calculate Annual Income
Rent X 12
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Calculate Annual Expenses
Taxes + Insurance + Mortgage X 12
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Calculate Total Amount Invested
Down payment + Rehab cost
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Calculate Net Operating Income (NOI)
Annual Income – Annual Expenses
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Determine Return in Investment (ROI)
NOI / Total Amount Invested
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I hope you gained some valuable insight on Investing in Real Estate. If you are looking for more detailed information please visit our website at www.mi-reinvestingcoach.com or call 616-828-0290.