Tag Archive | "profit"

Setting a Renovation Budget for Your Real Estate Investment

When buying property to renovate and sell, if your goal is to make a profit you have to take into account what kind of profit you want to make. i.e. What will be the return on your investment (ROI).

Buying a house cheap, and doing the minimum necessary to renovate it, may well make you some money on the deal because you have taken a house in disrepair and sold it in a liveable condition.  However, there is always the danger that you will find more wrong with the house the longer you work on it and the more you have to dig into areas not easily seen on first inspection.

You have to have a strategy when it comes to renovating a house, because without being firm and decisive you will allow far too much slippage when making decisions, and it is this slippage that can turn a nice profit into a mediocre one or worst case, a loss. Instead of taking an overly flexible strategy, you need to have a plan when deciding what work you will do. Sticking to your strategy – up to a certain point, anyway – is important because if you fail to stick to your plan, costly overruns can eat into potential profits.

Equally, though, you need to be ready to spend money to make money. Being conservative and unbending as regards your budget could see you not reaching a decent price on the sale of a renovated property. Budget an amount necessary to make the house compatible or slightly better than similar homes in the neighborhood. This way your house will be more attractive to potential buyers.

Have a budget you would like to stay within, and a slightly higher “contingency budget” which allows for potential mishaps along the way – by doing this you will increase potential profit and get a good ROI.

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Investing in Overseas Real Estate

For the ambitious real estate investor, one of the most interesting ventures can be the purchase of an overseas property.

There are many of us who would like to one day retire overseas, and even quite a few of us who would like to move abroad while we are still some way away from retiring.  If we are adaptable individuals, perhaps with one or two foreign languages in our vocabulary, we can often find that the challenge of living and doing business overseas can be an enjoyable one.

Of course, for those of us used to doing business predominantly in a domestic setting, the practice of buying a house abroad can often be wildly different to the idea. Depending on where you plan to buy, there may be restrictions on foreign nationals buying or owning property.  You may have to pay larger taxes, and you may face different and sometimes strange rules regarding exactly what you can develop, where you can develop, and how you do it.

For this reason it is essential to do your research.  Overseas real estate is a tricky way to make money, because you will need to commit a large amount of your time to being present on site. Many people try to avoid too much time spent away by appointing a project manager, but to paraphrase an old saying: “Who manages the project manager?”.

If you want to guarantee a profit, you will have to take an interested involvement in the development, and if you are planning to lease the property to tenants you will need either to employ a trustworthy individual or managememt company, or move – temporarily or otherwise – to the country in question.

Buying and selling real estate is one way to guarantee an interesting business career – but it is not without its drawbacks. One of those drawbacks, the significant risk factor, is part of what makes it interesting.  But if you can play the game well, you need never become one of the many people who falls under the intense pressure of trying to turn a profit.  Sometimes, real estate is as much about trying to minimize short term loss on a deal when there is potential for a long term hold strategy to maximize profit.

Whenever you buy a property with the intention of increasing its resale value, you do it with some amount of optimism.  The mere thought of “If I can get this work done, source the materials and get it to market on time and on budget, then I will make a profit”, leaves open three ways that things can go wrong.  Maybe the work will not get done as well or as quickly as you had hoped. Maybe the materials will prove harder to source than you had planned for, and as for the schedule “, well, unforeseen circumstances make fools of us all. The fact is that sometimes, despite your best efforts, you will see your intended profit begin to shrink – and sometimes, it will disappear altogether.

It is at this point that you will be tempted to bring everything to a sharp conclusion and just sell for whatever someone will give you. This is a big mistake.  If you hold on and set a new, realistic deadline and price you can at least cut your losses, and maybe live to develop again.

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Real Estate Investing: Don’t Sacrifice Quality for Price and Schedule

The concept of turning a maximum profit in a minimum time frame is as important in real estate as it is in just about any other sector of the business world.  And of course, when you create a profit margin this makes for three immediate variables: How quickly can you do something, how much must you spend and how few mistakes can you make while doing it?  The introduction of these variable factors can make it very difficult to carry out the perfect real estate development.

If you are keen to get the job done quickly, you will face the challenge of avoiding paying through the nose while trying to ensure that the job is still done correctly.

Decide that price is your priority, and you will still want the work done as well as possible, but you don’t want it to take forever.  And if your major priority is a good job, you will have to consider how you will get that done on time and within a budget.  In trying to make sure that each of these priorities is served, you will find yourself with some judgement calls to make.  On some issues you will not be able to satisfy the need to do something cheaply and quickly and well – so what do you sacrifice?

Sometimes the circumstances will go some way to making the decision for you. In order to make sure that you can live with the decision, you need to be firm in making it.  Too much procrastination will simply narrow down your options, so be prepared to make tough choices if you want to make a success of your development.

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Commercial Real Estate Investing

Buying real estate is always loaded with questions and variables, and it takes a confident and decisive individual to get it right and make a profit.

It can be an even more vexed question for those who are looking to buy commercial real estate. When you are buying and selling a house, the important issue is that you do enough to the property in order to turn a one-time profit.

Buying a commercial property is another issue entirely, as you need to ensure a lifelong commercial viability.

It is safe to assume that people who buy commercial property are more likely to be in the deal for the long haul than are people who buy residential real estate. It is not always the case, but it usually is.

Therefore, there are different things that you need to be aware of when buying a commercial building. The first of these is where it is located.

Ideally, you want somewhere with good commercial outlets nearby. If you invest wisely in a well-located commercial property you can guarantee good profits simply by virtue of “walk-by” business.

Commercial real estate has taken something of a hit in recent years due to the feasibility of running a business from home.

Now that people can run a company from their computer with minimal start-up costs, people are choosing to do so in favor of paying the often high costs of getting set up with “premises”.

There are businesses, though, which will always need a physical edifice – such as restaurants and garages. Owning a commercial property near to one of these, their workforces and their customers, can pay off in a big way.

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Fixer-Upper or Money Pit?

The “fixer-upper” is a grand tradition of real estate.

Many houses go on the market needing some work before they are truly habitable. Whether your intention is to live in the house or to fix it up and sell it on for a profit, you will need to do some work one way or the other – and because of the work involved, often these houses are available for a bargain price.

However, it should be noted that not every house that is available for a low price is a bargain. Sometimes, people only find this out after doing a lot of work.

A “money pit” is a house which looks like a bargain when you initially buy it, but when you come to realize the extent of the renovations that need to be done before it is even habitable you realize that you will have to spend a ludicrous amount of money.

If you are selling, you may not make a profit. If you plan to live there, you’d have been better moving in to an already suitable house and paying the extra money up front.

Of course, by the time you have found this out, it’s already a little late.

Before buying a house which requires work, it is always advisable to have a survey carried out on the property to find the extent of work that needs to be done.

You may be pleasantly surprised, or you may get a warning that you should not proceed with the purchase.

Although it costs money to have a survey done, it is still immensely preferable to buying rashly and then spending time and money putting that decision to rights.

“Buyer Beware”!

There is a Latin phrase – caveat emptor – which essentially, in English, means “buyer beware”. The message intended in those two words is that anyone purchasing the item so labelled needs to be careful.

The price may look like a steal, but ask yourself before you go any further”, who is doing the stealing, and who is being stolen from? You may well find that if a deal looks too good to be true, the reason for that may be that it is far too good to be true.

What you need to be sure of before you sign off on any deal is that the money you have budgeted for the purchase, in addition to the money you have earmarked for any changes to the house, will be recoupable from the sale of the house.

If you buy a house and then get inside the property to get a close look, the last thing you want is to see that there are problems which will cost a lot more to repair than you thought they might.

Suddenly, your big profit is looking like a small profit, a break-even deal, or even a loss.

Before you buy a house as a “fixer-upper”, think about what needs fixed and do not just look on the surface.

You may need to have a survey carried out on the property to make sure that it is not carrying other faults that could end up doubling what you have to pay to get the house up to scratch for the purposes of selling it.

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Renovation Ins and Outs

When you buy a house for the purposes of renovating it, there may well be a simple equation in your head. Money spent on buying house + money spent renovating = total spend. Resale price – total spend = profit. Simple! Isn’t it?

Well, maybe not. You see, on top of this you do need to consider what else is going on while you are renovating. Renovating a house is not something you can do in “dead time”, so you also have to look at how you live in the mean time. After all, if you need to be present for the work – because you are helping to do it or because you need to monitor the project – then this cuts into time that you would ordinarily spend working and making money.

If you have sold your house to buy the new one, then you will also need to take care of resettlement costs, whether you are renting or have found another solution. It is hard to live in a house which is in the middle of renovations, as anyone who has done it will tell you. You may need to work into your budget an amount which will cover the costs of your time spent on site and your temporary accommodation.

If you borrowed in order to buy the house, you will need to at least service the mortgage on it, too. Therefore it is essential that you have a plan, and that that plan is realistic. Many people get carried away thinking of the profit that they will make, but it is important to think about the difference between gross and net profit.

It is important when renovating a house to bear in mind that there is a big difference between a loose plan and a final plans. You may have ideas about what the house is going to look like and how much money it is going to make you, but those ideas can only become reality with a lot of work. Don’t get carried away by the seemingly foolproof nature of your plans.

You should always make sure that you “comparison shop” every decision you make. You may need to pay builders and other workmen to do the renovation work. You should consult as many different companies as you can before contracting one to do the work – check them for references and price. Do the same for materials and for any other service that will be required.

It can be tempting to walk away from a development, even temporarily, because you have just reached a point where every decision is difficult and you are second-guessing yourself on everything. You may just want to give up. At these times, you need to show steely reserve and keep in mind that time is very nearly equal to money.

Finally, you should always be ready to take the opinions of others on board. By going with your own gut on every decision you make it is possible to develop tunnel vision. You don’t have to run every decision by someone and agree with all of their points, but it can be useful to ensure that you are looking at the plan from a more detached angle – as this is what potential purchasers will be doing.

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