New Realtor Investor

[Christopher Makestas]

Hey guys! I'm brand new to real estate. I got my license recently and I'm currently interviewing various brokerages. I hope to have my license hung by the end of the week. I'm also an investor...or at least working towards becoming one. My goal is to purchase my first home within the next 3 months. I would like to position myself in the market as a realtor that understands the needs of investors. I'm well read on real estate investing through various books, podcasts, BiggerPockets of course, and I've attended a few local REIA's. My understanding of real estate is by no means advanced but I can understand the lingo and most basic concepts. I'm incredibly excited to begin this journey and can't wait to get started. My initial goal is financial independence through buy and hold rentals. Once that goal is reached I'll shift focus towards flipping, development and large scale projects. For my first project my plan is to purchase a 4br house with a very close friend and house hack. We've lived together and even opened a business together so I have no concerns as to how our relationship will be affected or the risks involved. We would like to co own and live in the property and rent the other 2 bedrooms in the hopes of having the renters pay down the mortgage. We'll most likely get in with an FHA loan which to my understanding will build more room in the deal to either cash flow or at least fully pay the mortgage on a monthly basis. The home we purchase will be livable yet in need of updating. We will little by little fix up the property (both handy) such as replace the floors, countertops, etc. Then we'll do a cash out refi, move out after at least 6 months have passed (in order to qualify for another FHA loan for the next property) and do it again. I let me know your thoughts on this strategy and any pointers you guys might have about getting started. If your in my area or even if your not reach out to me! A little bit about me outside of real estate: I bartend currently and I'm always out and about. I work out several times a week and love being out on a boat and or cruising. I'm constantly working on some sort of self improvement and I never stop trying to move forward. Really looking forward to becoming deeply involved with bigger pockets community and hopefully providing value to others as my knowledge, experience, and skill set evolves. Thanks for listening!!

[Thomas Franklin]

@Christopher Makestas Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.

I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.

ARV - Desired Profit - Closing Costs to Buy - Repairs - 10% of Repairs - Holdings Costs - Concessions - Realtor Fees - Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).

ARV: After repaired value or what you think it will sell for once repaired.

Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.

Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.

Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.

Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, property insurance premiums, property taxes, loan payments, HOA Fees, etc.).

Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.

Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.

Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.

This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.