Although there are several formulas that real estate investors can use when trying to determine the value of a real estate investment (costs, income, and comparable sales approaches), what formula can a real estate investor use to ensure they “win?” money when they buy and not just when they sell”?
Yes, things like property appreciation, making improvements or renovations, etc. Property value will increase, but what happens when you overpay for a real estate investment? It could take several years for it to finally break even (when the market finally catches up).
I developed a formula called the BPO or best possible offer rule to help real estate investors determine price offer parameters/counter offer guidelines when investing in residential real estate.
The BPO rule requires the real estate investor to think through and assign a value to the various expenses associated with buying, holding, and selling property; If the BPO rule is followed to the letter, never again will a real estate investor find himself defrauded. at the end of a real estate investment.
Use the following formula when trying to calculate the best possible real estate investment offer:
BPO = COGS – BHS fees – Profit
Definitions of acronyms:
BPO = Best Possible Offer
CMV = current market value
BHS Fees = Buy/Hold/Sell Fees
Here’s a real-time example so you can see how it works: Let’s say you’ve found a real estate investment with a current market value (CMV) of $100,000 and you want to make 10% gross of the purchase price (PROFIT). and count $20,000 in various closing/loan/realtor fees in your counter offer.
Based on this example, your counter offer could not exceed $70,000—
BPO = 100,000 – 20,000 – 10,000 (10% of COGS)
BPO = 70,000
Exponential wealth in real estate investing is created on all sides of the transaction: making money when you buy, hold, and ultimately sell the property. By making money early on, you reduce your overall risk and increase your chances of a higher ROI (return on investment) and profit.
In today’s market, paying too much for a property can lead to negative cash flow (if you’re renting) or be turned upside down (when your mortgage is worth more than your property); this type of financial holocaust can be avoided. if you count…