Starting out with a Plan

[John Romero]

Hi All,

I guess you can say I have information overload!! Been reading tons of forums, blogs, and articles here on BP. I have a few questions, maybe someone can help with the answers...

1. How should a beginner categorize ALL this information. What are the steps when considering a distressed property to purchase, renovate, rent, and/or flip?

2. Numbers, Financials, etc. What does it mean to "run the numbers" on a property. I've seen a few formulas. (ARV * 70% - repairs = max asking price) I've also seen a 50% 2% formula when dealing with rental expenses. Are these the two basic number scenarios when considering property that investors usually follow?

3. Area demographics. Where can you find information of what percentage of a town/city rents vs. owns property? What should you look for in an area (numbers, and facts wise)?

4. What should you put on your business plan? I understand a RE business plan is different than a regular retail business plan. What's worked for you?

I'm just trying to make sense of everything, it seems like a lot of the articles assume you have background information on real estate. I'd like to find a prerequisite so i'm prepared when the time comes.

[Rich Weese]

Hi John,
I'll take # 1 and let others share on the others.
The distressed property need to be one with enuff upside potential to allow you to SCREW up on all your estimates! Estimate of rehab costs- estimate of time to sell-estimate of selling price-estimate of your net result.
It is easy to find distressed property, every area has them. I like to find one that acquosition and rehab costs keep me at 50% of value . That leaves room for that screw-up I talked about. It also leaves you room for a partner or person with $ to help.
If you want a quick profit, you have to be willing to sell for less, or take a finders fee. If you want to make more, you'll need to do the re-hab.
Once re-hab is done, I like to find the renter, and have a turnkey situation for an investor to purchaser. An investor normally has more money than time to do all those things like fix-up and finding tenants.
If you're in the position to hold property, that may be the way to go. Re-fi to get your money out, keep for long term and go do it again. It is a successful strategy that many on BP have used, including me.
I think that gives you some ideas on # 1 on your list. Rich