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I then hear some silence and then, “And where exactly is that?”
What I am about to reveal may be surprising to some.
But first…a little background.
Most real estate investors start their training by attending guru seminars that advocate that you look for the “ugly” house that you can fix up and flip.
While there is nothing wrong with that strategy, what it misses is the LOCATION. Where is that ugly house? If it is in a less than desirable neighborhood, it may not be easy to sell and will not bring top dollar.
So, what I tell my clients is that the location of the ugly house is a key. In addition, look for houses that have what I call, “value-add” potential, which is the capacity to boost the value by changing something. For example, look for a 2 bedroom, 1 bath home in a 4 bedroom, 2.5 bath neighborhood. The extra square feet you can add to that house in the form of converted space or added lumber will more than reward you for your effort. Why? An added square foot of space in a neighborhood that commands high dollar for a finished square foot holds a lot of profit for you. For example, in San Francisco, a contractor can add a square foot of space for under $300 per SF. But a finished square foot of space can sell for between $750 and $1,200. Now you are starting to see what kind of projects to look for.
Yes, those guru rehab boot camps do get some things right, but they give the impression that fixing up and flipping houses is an automatically feasible business model. But there is a bit more IQ that has to be inserted–that of where you choose to buy and flip.
Wouldn’t you rather be rewarded for your efforts to rehab and flip? Wouldn’t you rather be able to find more deals? When I tell you to look for deals in the higher price neighborhoods, I am not being a prude. I wish the numbers worked everywhere. But one cannot squeeze milk from a turnip. You have to go where your business model works and stop trying to make it work where you are comfortable in some cases or where you live.
The rehabbers that I know who focus on the higher end of the market are so busy buying houses right now, rehabbing, and flipping, that they literally have more deals than they can handle.
You may be struggling to find deals right now. I would ask you, “Where are you looking? Are you looking where everyone else is looking?” If so, it is no wonder 10 other investors beat you to it.
So, where are the deals my clients are finding? Just look at a map of California and find homes that are priced above $600,000 and that were built at least 30 years ago and you have found a potential gold mine.
Give up the notion of competing against all the other real estate investors working in the less desirable or even the average priced neighborhoods. The numbers do not work as well and you will be competing against all the other real estate investors out there.
It’s kind of like what happens when a rocket shoots into space on its way to orbit. It experiences a lot of turbulence as it passes through the earth’s atmosphere. But after the rumbling and heat of friction ends as it passes to the other side, there is an uncanny calm of being beyond and free.
This is what it is like for a real estate investor. You can struggle to find deals and compete against the dozens of investors in your area who are chasing after the average priced homes and then be required to pay too much—which makes the deal completely untenable. Or you can choose an area where the homes are more expensive, highly desirable, and fewer rehabbers work there because the entry cost is higher.
Remember, Gap Funders can provide you up to 100% financing. We are accustomed to funding deals that can be purchased for up $2mm with a resale of $4mm and up.
That is not to say there is no competition at this level of the market. Whether it is San Francisco, Paso Robles, Pasadena, Walnut Creek, or La Jolla, there will always be competitors. But it takes more money to play in these markets; thus, there is less competition.
As the saying goes, “The ladder is more crowded at the bottom rung”; and this is true in real estate investing as well.
As Gap Funders, we see tremendous potential for rehab projects in the higher priced markets that will reward you well for your skill and effort.
Will you consider tweaking your business model if the deals are not where you have been looking?
Once your rocket gets past the heat of the atmosphere, you can look forward to a new freedom to expand and grow your business.
Gap Funders provides up to 100% of the financing you need to fix and flip houses in the Western states. Visit us at: GapFunders.com for your free ebook, “How to Become a Millionaire in Two Years with Little or No Cash or Credit.”