All Forum Posts by: Michael Figueroa

I feel as though these are fears from everyone just starting out. There is only so much learning you can get from reading books, videos, etc. Actually doing will help yield a ton of knowledge. It will also make the process not so scary. 

Have you identified the type of property and area you're looking to invest in? How about your core people you'll need? (Realtor, Lender, PM) These will be some key people you're trusting to take care of your investment.

Before I would go paying big money for someone to walk you thru a deal, Id use some of that to invest into yourself. Also you can use that money towards your deal. There are a ton of information on these forums. I feel like you can get answers to pretty much any of your questions on here. No point in spending thousands for an expert to tell you the same thing. 

You’ll never find anything viable at 70% in Los Angeles and this has been true for years, @Michael Figueroa. In our higher dollar market, you can push the number to 75%, which is what we use to define a good deal. To be clear, the rule-of-thumb is:

Purchase Price plus Rehab Estimate <= 75% of the ARV

Under normal times, i.e. not the last few years where prices have been beyond crazy, using 75% will result in about a profit of roughly 10 to 15% of the ARV. That is, you can normally expect to earn $50k to $75k on a $500k ARV and $100k to $150k on a million-dollar ARV property. Lately, rehabbers are making 20% to 40% of the ARV on higher dollar properties. This is great but completely unsustainable and nothing you should rely on.

75% deals exist, though they‘ve always been hard to find. Once you hit 85% you will roughly break-even (and it's linear). Those paying anything over 80%-90% are either out of their minds and desperate, or they are completely overestimating the ARV, or will simply lose money.

Run the numbers in detail and you’ll see that after your purchase price, the rehab costs, hard money fees, and real estate agent commissions will comprise most of your expenses. If you pay cash and/or can minimize sales fees, then you can pay more. If not, stick with 75%.