Due to working with banks and attorneys a lot on their clients issues, I get involved in a lot of investment real estate.
What kills me is the amount of people that make investment decisions without using a mathematical calculation when making a buying decision.
Back in the day, I used to buy property fehab or re-sale. The spreadsheet takes into account the future rehabbed value, taxes, holding months, closing costs on the front end, cost of money, permits, utilities, material costs, clean up, closing costs to sell, real estate commissions, etc. It was so detailed that we counted the switchplates we would need. Those are about $.17 each. After determining what the total costs in the deal would be, the spreadsheet calculated the projected ROI.
By the time we made an offer on the property, we knew that there was little risk in the deal. Yeah, I got burned twice. It was my own fault. I didn't work the plan.
The people out there selling get rich quick programs have about 5 or 6 factors in the calculation and they skip about 40 steps. It is no wonder that people are buying this property and getting in trouble. In many cases they can't afford to sell it, don't want to rent it.
Result - Carlton Sheets gets rich while inexperienced investors make bad decisons.
I don't know, I am just cranky today.
Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Ohio Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.
United Country Ohio Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17
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Hi Rich,
I have read all three of your posts today. Excellent information. I deal with "investors" quite a bit and actually spend more time talking them out of purchasing "the deal" than anything else. They just don't get it. In my area the prices on duplexes skyrocketed over the last 18 months. The "new investors" are paying $300,000 for a duplex that will rent for a max of $1,600 per month TOTAL( that's $800 per side)! Totally ridiculous. They think that if they supplement the rent by about $1,200 a month and hold on for a couple of years they will be able to sell for a profit. Must be the new math. I just don't understand their thinking.