A "Good" Deal is what many are looking for. I have to correct that notion. We all should be looking for GREAT DEALS.
The average joe can find homes 10-20% below FMV. We are all here to do better than that.
That is where the "think a little different" concept comes in to play.
You need to look at how much rent that the average home can bring in ...in your market. Then you need to understand HOW LARGE of a mortgage that you can normally afford to take on in that area and still maintain at least break even, but hopefully POSITIVE cashflow.
Then you need to be looking for homes that cost 40% to 50% MORE than the Mortgage that you can afford to take on "normally".....WHAT you say????
YES.......we are looking to get CREATIVE here.....WE are NOT the average JOE. WE WANT INCREDIBLE DEALS.
In those deals lie the success that we all hope to achieve.
I will give you an example...
If you can afford ONLY a $100K mortgage payment (in your area) in order to keep the payment low enough for a RENTER......then you want to be looking for deals, in general, UP TO $150K FMV perhaps a bit higher.
The reason for this is that you INTEND to only pay $100K or so ....no matter what the deal is. Thus, we are looking. You are looking for flexible sellers, and you WILL be putting in RIDICULUS offers in some peoples' minds.
That's the point !!! INSIDE RIDICULUS offers are RIDICULUS PROFITS....
Don't we want at LEAST $50K in equity on every purchase?
In Order to get HARD MONEY.....you have to buy the place for at LEAST 30% below ARV. Many I have come across want 35-40% below ARV. That means you need to find deals that are 60 - 70 cents on the dollar to get them to fund you. In other words.......GREAT DEALS......If you can do better......WHOO HOO as I like to say.
In the case of my first house....I am thinking "OMG" is going to actually fit better. It is actually possible that this property will have MORE EQUITY than I paid for it. It really is Unbelievable, and I think I am just going to shake my head and Thanks GOD for it all.
So "good" deals may work for you at first but then you need to ask yourself whether tieing up your funds will be worth it in the long haul. We need to use our "tools" WISELY....and If you are limited with cash....you might want to make sure that your first deal allows you obtain a HELOC once aquired. Since Banks only want to give UP TO 80% LTV...on a HELOC....you need GREAT DEALS to allow enough Equity that you can actually aquire a HELOC.
.....My issue is just this....we at this time have MANY opportunities available to us. I tell sellers exactly this point...PRIOR to and as part of explaining my offer.
We are NOT looking for "good" deals. We want GREAT deals....anyone can find a decent deal, but it is the GREAT deals in life and in this business that will help you along at a quicker pace. The rule of thumb is that you are looking for deals that are 50 to 60 cents on the dollar OR BETTER.
The reason for this number is that HARD MONEY lenders tend to ONLY want to loan THEIR money for deals that carry those kind of ratios. Not only that.....IF you DO find a deal that is Hard Money CAPABLE.....You are getting a house with EQUITY galore. Not ONLY that.....once you aquire tha property.....you can apply for a HELOC on the home.
A Home Equity Line of Credit is very INEXPENSIVE, and in some cases may only cost $100 a year to keep open. I have a house in Escrow right now, that once Closed....should have between $100K on the low end...up to $200K in EQUITY available.
I will open a HELOC at that time, and have a nice cash availablity sitting there waiting for me at ANY TIME I may need it. The plan is to "rob peter to pay paul".....I will use the first houses' equity to fund any down or closing costs that are necessary (where NO MONEY DOWN may not work).
Mind you....if you are purchasing the next home as yet another GREAT deal.....you will have equity available on that second purchase.....Once aquired....the SECOND homes' HELOC will pay back the FIRST homes' HELOC and return that balance to ZERO.....The idea is that you want to KEEP any debt that is incurred aquiring a SPECIFIC property ...ON THAT PROPERTY.
You don't want the first home to carry the debt of the other...ETC... In this way you can keep your books straight as to the actual costs and where the debt should be placed. You basically are creating your own CASH bank.
Eventually you may find that it is easier to borrow 100K from several of your OTHER homes to fund a purchase....then REFI and pay back your individual HELOCS with INTEREST.
This could be done INSTEAD of borrowing hard money from ANOTHER lender.....You might have to work it up, but you wouldn't be paying points NOR 12%- 16% Interest.
HELOCS are generally much lower interest, so perhaps this is a GOAL for us all to have....become your own BANK.
You need to remember that most banks are ONLY going to lend up to 80% of the LTV (loan to Value) on a HELOC. Therefore you want to be thinking about "how much" equity will be available.
The answer to you is Yes....a small amount of equity and some cashflow is very cool, but the question still remains.....do you want to focus on smaller profits with less gain or LARGER equity that opens up a much larger picture with BIGGER possibilities.
BUILD your knowledge base....it is your ARSENAL to wage war against disbelief and the negativity of the status quo. You need your weapons......It's your choice whether you carry them or not.
Build Relationships and open the door to opportunities that could once only be dreamed of......never take those relationships for granted.
Don't let EXCUSES be the nails that keep you INSIDE the box.