The Simple Rule Every Real Estate Investor Should Know About Buy & Flip Residential Investing

Although there are several formulas that real estate investors can use when trying to determine the value of a real estate investment (cost, income and comparable sales approaches), what formula can a real estate investor use to make sure that they “make money when they buy and not just when they sell”?

Yes, things like property appreciation, making improvements or renovations, etc. will boost the property’s value but what happens when you over pay for a real estate investment?---it could take several years for you to finally breakeven (when the market finally catches up).

I have developed a formula called the BPO or Best Possible Offer Rule to assist real estate investors in determining price offer parameters/counteroffer guidelines when investing in residential real estate.

The BPO rule requires that the real estate investor think and place a value to the various expenses associated with buying, holding and selling property---if the BPO rule is followed to a tee, never again will a real estate investor find themselves short changed at the end of a real estate investment.

Use the following formula when attempting to calculate the best possible real estate investment offer:

BPO = CMV - BHS Fees – Profit

Acronym Definitions:

BPO = Best Possible Offer

CMV = Current Market Value

BHS Fees = Buying/Holding/Selling Fees

Here is a real time example to allow you to see how it works---let’s assume that you have found a real estate investment with a current market value (CMV) of $100,000 and that you want to gross 10% of the acquisition price (PROFIT) and account for $20,000 in various closing/lending/realtor fees in your counteroffer.

Based upon this example, your counteroffer could not exceed $70,000---

BPO = 100,000 – 20,000 – 10,000 (10% of CMV)

BPO = 70,000

The exponential wealth in real estate investing is created on all sides of the transaction---making money when you buy, hold and finally sell the property. By making money on the front end, you reduce your overall risk and increase your chances to greater ROI (return on investment) & profits.

In today’s market, paying too much for a property can lead to a negative cash flow (if you are renting) or being upside down (when your mortgage is worth more then your property)---this type of financial holocaust can be avoided, if you do the math…

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H. Scott Miller is a nationwide commercial and residential investment lending professional specializing in the creation, management and growth of real estate wealth from a mortgage prospective. He is also the author of "The Not So Funny Games That Lenders Play With Your Money That Can Cost You A Fortune Every Time You Get A Mortgage" which is freely distributed at The Mortgage Inner Circle.

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