As a hard money lender, I have deep respect for the hard work and hundreds of hours our borrowers put into each of their rehabs. Some of that work is exhilarating – think about getting that contract signed, especially when the price is right! Some of it is tedious – pushing through the county bureaucracy and dealing with inspectors. Some of it is downright maddening like when your contractor is dragging his feet or slams you with a change order. When all this hard work is done and your property is about to go on a market, we know you feel like breathing a sigh of relief. But wait. You’re now facing your final challenge – pricing your property right.
Being a Real Estate Investor
The next question you should ask yourself is whether your potential rental property will cash flow. This is why you must understand what the debt coverage ratio is. The debt coverage ratio (DCR) measures the landlord’s ability to make monthly mortgage payments from the income generated from renting that property. It tells you whether a rental will generate enough cash to pay for its expenses. Ultimately, it helps you decide if it’s an appropriate candidate as along term or not.
In the previous article we talked about the differences between flipping homes and keeping them as rentals. The first strategy makes money right away. The other serves as a long-term savings vehicle. Which strategy is right for you depends on many factors. Among them are your financial goals, your current financial situation, and how much time you can afford to spend on the project.
Flipping homes and holding them for a long term are two dramatically different approaches to making money in real estate. Some investors specialize in one particular area. Others like to employ both strategies: selling off some properties and keeping the others. I like to compare flippers and long-term investors to hares and turtles, without passing any sort of judgment on hares. Both animals are evolutionary winners that thrive because of their different survival skills.
A couple of days ago, I heard some people talking about a listing on the MLS. It seems one of them was looking to sell a nice single family home while the other was looking to buy a single family home. As I watched them do the negotiation dance, it occurred to me how much neither one of them understood the true opportunities that using the MLS brings. They really didn’t have a handle on dealing with DC real estate investments.
Today we continue our two part look at the first five things to remember when you think you have found a deal. (To read the first article, please click here.) There are quite a lot of things to look at, but I would argue that these five are paramount. Investing is not a get rich quick type of business. Sure, there are times when you can find a quick and profitable deal, but those are not the norm. Most of the time, you are looking at putting in some serious time and patience. If you are going to do this correctly make sure you have plenty of both. Good strategy and a solid plan help, but sometimes deals take on a life of their own, which is why we do our best to help you get the best fix and flip loans in the market.