Below you will find a series of tips on how to buy Foreclosures Southwest Florida.
Buying and selling foreclosures in Southwest Florida is no easy task. There are many things needed to prepare for in buying and selling distressed and foreclosed properties.
Find A Real Estate Professional Who Invests
What do they call them Brokers? Because they are broker than you! But in all seriousness. Be sure to work with real estate professionals who buy, sell and invest themselves. The reason is, they should have the experience on success as well as failures. A lot of money can be made with this strategy so align yourself from the beginning.
Line up your $$
Many times banks will not lend on distressed properties due to the condition. It is just too risky in many cases as many are not in livable condition. So partner with a friend or family member. You maybe the handy guy that can do much of the work and quarter back the rehab and other contractors. If they are the money person and you are the find the deal and get it ready for market person, then you might be able to split the net profit 50/50. I will have more on this in other BLOGS to come.
No Money? Hard Money Maybe An Option
If you do not know what you are doing, then this might not be the best option. However, if you are confident in your abilities to secure a deal, rehab it and have a profitable ARV (After Repair Value) then so be it. Hit the contact box below and we can align you with some options.
Look at Multiple Properties Every Week
On average I will look at 30-50 properties, make 20-40 offers to get one deal. Yes this is WORK. Don’t kid yourself. It is a numbers game and it is imperative to play within the lines. Not only will looking at property daily find you the deals, you will educate yourself on the market and will start to recognize deals fast. Example – I found a deal in the Bonita Beach Club recently. While all other properties are going for $500-$700k, when I came across an off market deal in the low $300’s, I jumped on it. I figure a simple $10k renovation should bring $75k in instant equity. Buy right guys and gals!!
ARV = After Repair Value
You need to know your numbers to the dollar amount! I can provide you my personal spreadsheet that auto calculates my numbers. Just hit the box below with your info with ARV Spreadsheet in Subject and I will email it to you.
So when I look at a deal, I run it backwards. I figure what the property will be worth once it is completed which is the After Repair Value. Now I don’t inflate the numbers to make me feel good. I look at the value that if I needed to dump it ASAP to get on the next deal what price would that be. Let’s say that number is $525,000.
Then work your rehab numbers. If you do not know construction, then get someone on your team who does. It is imperative to know the labor and material costs with a little buffer for unknown. You WILL run into the unknown like rotted drywall, roof issues, water leaks, water heater replacement, HVAC repairs, etc. Let’s say the reno budget is $75,000.
There are costs of doing business. If you have a hard money lender then they may hit you with a couple points plus 10-12% interest. You have to factor this and interest costs for anywhere of 4-12 months depending on the project.
If you are cash, you should still figure in interest on the “loan.”
Don’t forget about the back end closing costs!! When you go to sell the finished product, you will have costs such as real estate commissions, Title Insurance / Fees and Doc Stamps on the Deed. Let’s figure closing and hold costs are $40,000.
Example Numbers – Work it backwards.
$525,000 (Sale Price)
– 75,000 (Reno Costs)
– 40,000 (Closing Costs)
– 305,000 (Initial Acquisition)
$105,000 (Net) – 27% return on your capital.
Don’t Want To Flip Your Foreclosure? Figure your Cap Rate and Cash On Cash Return!
There are many investors who want to buy, hold and lease. So I suggest you figure at least these two formulas at a minimum.
Cap Rate = NOI (Net Operating Income) / (Total Acquisition)
I hear people say NOI / Purchase Price and that may not be the case. Most of the times there will be a cost to acquire AND rehab costs that you have to figure into the formula. Let’s say you buy a triplex for $225,000. You get a loan with 20% down and it costs you $8,000 for closing costs. You also had to put new floors, paint and appliances in and it cost you $20,000. Then you total Acquisition is $253,000.
After ALL expenses including but not limited to lawn, utilities, deferred maintenance, pool, taxes, insurance (Do not include debt in your expenses). You net $30,000.
NOI ($30,000) / Acquisition (253,000) = 11.8% Not Bad!!
Cash On Cash Return
This is where debt can be your friend if you know what you are doing. Please note – This is good debt as you are buying an asset which makes you money each month. If you paid all cash for an income property, you cash on cash return isn’t going to be good without the power of leverage. But again, leverage wisely!!
Cash On Cash = Annual Pretax Cash Flow / Cash Invested
The above example – Cash Invested would be your closing costs, rehab cost and down payment = $73,000
Pretax Cash Flow is net after all expenses including the mortgage = $21,000
$21,000 / $73,000 = 28% Not Bad!!
The above example are real numbers from a real deal we did a couple months back. If you are interested in buying foreclosures in southwest Florida, do not hesitate to reach out below. We will be happy to meet face to face to discuss what your goals are, risk tolerance, etc.
Also, begin your foreclosure search HERE.