By Larry Goins

How many times have you seen a run down vacant property and thought to yourself...that would be a good investment? You see it for several weeks or months and do nothing about it and all of the sudden you see someone is now rehabbing it and you see a “for sale” or “for rent” sign in the yard. Then you say to yourself... “I knew that would be a good investment! Darn, I missed that one”! You just weren’t sure how much you should offer and how much profit you should allow before making an offer.

Well, I want to take the next few minutes explaining exactly how much profit you should allow whether you are buying a fixer upper or buying a property that is already rented or ready to rent or sell.

The bad news here is that there are as many different ways to analyze a deal as there are ways to put a deal together. There is software programs that you can purchase that will calculate your internal rate of return every year from now until the property is ultimately paid off and beyond. There are spread sheets that you can buy to do the same thing and you can even design your own. You can use a calculator or a simple pen and paper method. My point is that no matter what system you use the most important thing I can share with you is a simple computer term called “garbage in – garbage out” It doesn’t do any good to have the most complicated software program if you don’t know what kinds of margins you need or if you don’t know your repair cost and closing cost. You have to know what numbers to enter into your calculations to get the right answer.

I’m going to butt heads with a few people here but I am very much a big picture person. I don’t use all of those fancy calculations when I’m buying. I basically need to ask the seller or realtor a few specific questions and then I can make an offer on the spot before we ever get off the phone. Is that great or what? This is why I can buy 10-15 houses every month on a consistent basis.

Here are a couple of hard and fast rules of thumb. And I want you to keep in mind that they are just what I said... rules of thumb. The first rule of thumb when analyzing a deal is very simple: “If you need a calculator, it’s probably not a deal”. Let me explain. If you can look at a deal, knowing the after repaired value, the repair cost and how much they are asking then you should be able to tell whether or not it is worth pursuing. If the profit numbers are so close that you have to figure it on the calculator then you probably need to say “NEXT” and move on to the next property, after making your low ball offer of course.

Let me mention here that it is extremely important that your deals are home runs, especially your first few. That is the critical stage in your investing career that will make you stay in or get out.

The next rule of thumb is also very simple. “If you have to ask someone if it’s a deal it probably isn’t”. Lets face it, you have at least read some books, been to a seminar or two, taken an investor to lunch, listened to a teleconference or training audio or something. You know what to do for the most part. YOU can tell whether it’s a deal or not so if you have to ask someone then it probably isn’t.

Now, how do we put all this stuff to use? As I mentioned I only need to ask a few specific questions before making my first offer right over the phone. Here is what I need to know before making an offer. I need to know the after repaired value, the amount of repairs and closing cost and that’s it. And if it is a rental property then I want to know the rent or potential rent. Sure I will eventually find out more information but we are talking about getting our offer out there on the first call.

I know what your asking...How much should I pay. This is very simple. If you are looking at a fixer upper then you don’t want to have any more than 70% of after repaired value invested and this includes the purchase price, repair cost and closing cost. Keeping a margin of 30% insures that when you are finished making the necessary repairs, after closing cost you will still have 30% equity. Then you can sell it, refinance it and pull out some cash on a refinance or you can lease option the property.

Now, if you are looking at what I call an “instant landlord” property then you can pay a little more than 70% of value. After all there are no repairs to do on your part. My rule is not to pay anymore than 80% of value and maybe 85% of value if the cash flow is good and there is good possibility of appreciation.

I have used a simple calculator for years to figure what to offer while on the phone but with having several people in my office that work all day making offers and buying property for me, I recently had a top notch programmer design me a simple, easy to use computer program to use in our office to help my buyers make the calculations very fast and accurate. One of my people who normally makes between 8 and 10 offers a day told me that on the day he started using my new “Ultimate Property Analyzer” he made 17 offers in that first day alone!

I hope this article has helped you to determine how much you should offer for a property... FAST!

About the Author: Larry Goins is an expert Real Estate Investor, Speaker & Trainer. Larry is also a Licensed Mortgage Broker & Lender specializing in Investor Loans. For a complimentary copy of my Ultimate Property Analyzer please visit http://www.FreePropertyAnalyzer.com. For more articles about investing, a free weekly teleconference for investor training, wholesale property listings and investor financing you can visit http://www.LarryGoins.com. Be sure to sign up for our free weekly newsletter for investors.

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