Real Estate Investing: Find  Profit

One of the easiest ways of getting involved in Real Estate investing is to buy a property and sell it within a relatively short amount of time for a profit. It avoids the hassles of dealing with tenants, and since you are buying and selling at basically the same time, it avoids the potential of the bottom falling out of the market and taking your profit potential with it. Due to the short time span, your return on investment, as a percentage, can be higher than almost any other form of investment.

Finding good property to "turn" is one of the most difficult tasks you will face if you intend to do a quick turn investment. You definitely will not be the only prospective purchaser of a property that shows good profit potential. Not only will you have other investors to compete with, more and more first time buyers are competing for the same properties--not to fix up and sell, but to repair and live in. In addition to your own efforts, you may want to enlist the help of a good Real Estate Agent--one who has experience working with investors--to aid in your search.

You will also need to develop a "team" of professionals that is willing to give you top priority. When you "rehab" a house, things must be done in a certain order. For example, any inner wall plumbing repairs must be done prior to any sheetrock work, which must be done prior to any painting or wallpapering. A plumber who makes you wait 3 weeks before getting to the work can not only hold up the entire project, but can also cut heavily into your profit potential. Besides the obvious monetary cost of holding the property while you wait for repairs to be completed, a holdup can push you from a good Real Estate market time (for example, early October) to a lousy one (for example, the time between Thanksgiving and Christmas) and severely limit your pool of potential buyers.
There's a missing component of return in real estate profits that very few investors have ever tapped - but could readily tap into if they knew about it and how to do it. Real estate Guru, Jim Evans, explained that most real estate professionals calculate their return on investment by adding up their traditional four real estate components and dividing by the down payment (or equity in succeeding years).

The four traditional components are: appreciation (if the real estate goes up in value), cash flow (gross income less expenses and debt service), principal payoff (each time you pay the mortgage part is principal payoff), and tax savings (multiply your depreciation by your tax level and you get a tax savings in dollars). The down payment includes the cash down and the non-financed closing costs due at closing.

Let's take a residential income property to make these components more concrete. Let's say you buy a duplex for $200,000. Assume that you bought it under appraisal, which is $240,000, and you could sell it within a reasonable time for $240,000. Suppose you put down 20% or $40,000 and the closing costs were $10,000.