Buying Right is the key to being a successful Investor
We’ve all heard the phrase “you make your money when you buy?” What exactly does that mean? You don’t actually make any money until you sell the property and you get your check for the net proceeds.
What that phrase really means is if you buy at the right price, you can pretty much screw things up (to a certain extent) and you’re still going to make money on the deal. So really the number one key is to buy right. If you buy right with a healthy margin built in for profit, rehab, closing costs and carrying costs, then you’ll do just fine. My personal philosophy is, “if I can’t make a good profit on a deal going into it, then I’ll pass.” I’d rather wait and get a solid deal where I know I’m going to make money on the deal.
For me, that magic number seems to be a minimum $25,000–$30,000 profit margin. If I can’t make at least a minimum $25,000–$30,000 on a deal, then I’d rather pass because if I go over on my rehab or it doesn’t sell for as much as I thought, then I’ve got enough margin to still make a profit.
For example, if instead of making $30,000 as planned I only make $15,000, then I’m not thrilled about it but I can live with it. But if I go into a deal looking to make $10,000–$15,000 and then things don’t go as planned and I break even or, heaven forbid, lose money, that’s not fun. Nothing is more stressful than trying to get a deal by cutting your margins and then doing a rehab where you’re stressed out the whole time about making the numbers work.