By: Stephen Cook
Frequently, I am approached by investors throughout
the country who think they cannot invest where they
live because it's a hot market. Ok, it's time for the
kid gloves to come off.
Understand this: As of the writing of this article
I currently live in an area ranked as the third hottest
market in the country -- and I am still finding great
real estate investing deals. And not only do great deals
exist, but they keep getting better!
So what am I doing differently? Here is your education
in real estate investing made simple. I'm focusing on
doing fewer deals and selecting projects that will result
in higher profit margins. Opportunities that will net
in excess of $100,000 for rehabbing and at least $20,000
for wholesaling are most desirable to me.
In the past, the average retail value of homes I purchased
was about $75,000. Now I purchase homes in the $250,000
range or higher in order to achieve my desired margins.
To achieve these types of margins, I've begun pursuing
the following types of deals:
Commercial Real Estate Deals - Although buying,
rehabbing and reselling commercial real estate is not
my top interest, high margins can be made by buying,
improving and holding, or just wholesaling commercial
investments. In hot markets there are always people
looking for profitable commercial deals. If you don't
have the money to buy the commercial real estate yourself,
consider wholesaling it to someone who does.
Land Deals - In hot markets, land is always
a wise investment and is usually easier to sell than
a home. This is primarily because there are many cash
buyers waiting for land to build their dream home. In
purchasing land, I look for real estate investments
that either have the potential for subdivision or have
large parcels of land where a lot or two for new homes
can be built or sold to a builder.
Obsolete Homes - In the 50's, there were many
homes built and a significant number were small, one
bathroom ranchers. It was the American dream! Unfortunately,
many people now believe ranchers are insufficient and
worthless. This is a good thing for investors. In areas
that are hot and have a number of these homes, investors
are usually able to buy these ranchers for less than
the value of the lot itself.
In purchasing this type of home, I will either tear
down the rancher and build a new one or build modern
additions to make it more attractive to buyers. The
key thing most buyers want is a minimum of two bathrooms.
When I buy one of these homes slightly under or at market
value, I can usually get about $2 back for every $1
in renovation and additions. If I buy a home for $200,000
and put $70,000 into it, getting $350,000 or more for
the home isn't uncommon.
Another obsolete and hot item is a house on the water.
Recently, I've been seeking small cottages on Baltimore's
waterfront (a.k.a. Chesapeake Bay) with the intent of
tearing them down and putting up new homes. I'm able
to occasionally buy an outdated cottage for $250,000,
put a new home up for $200,000 and retail it for $600,000
Condos - Builders and buyers can't build enough
of them. Taking old apartment buildings and doing condo
conversions is hotter than ever. Do a nice job and make
them luxury condos, buyers will be lining up for them.
Of course, give consideration to location because condos
are more desirable in some areas than others. For example,
the Manhattan market demands condos. Everyone wants
one. However, many are outdated with old kitchens, antiquated
bathrooms and horrendous decorations, especially the
wallpaper. Although condos in this area frequently sell
for over $1 million, they are small and renovations
are only needed to the inside of the units. That's the
bonus for investors 96 no exterior renovations. An AWESOME
renovation will cost about $30,000-$40,000 and sell
for $150,000 more in many cases.
Pay Full Price and Still Make Quick Cash - There
are always hot spots within hot markets. These are areas
where people are lining up and waiting for homes to
come available. There are more buyers than available
inventory. People will make full price or higher offers
the day listings come out, regardless of what the home
looks like inside. They just want to get into the neighborhood.
In pursuing these deals, I would do mailings in these
hot neighborhoods and let people know that I'm looking
to buy a home, am willing to pay them full price and
can save them the realtor's commission. I would sit
back and patiently wait for the sellers to call.
Because it's a private sale, I would tie the homes
up with very small deposits and then look to assign
my contract to a retail buyer who is willing to pay
more than I am to get into the neighborhood. And since
no realtor is involved, I would negotiate a fair price
with the sellers and get the benefit of the savings
plus whatever the buyers are willing to bid over list
When dealing in markets where homes sell for $400,000
or more, a $20,000 markup or more isn't that big of
a deal. When getting upwards of a million dollar home,
$50,000-$100,000 is almost irrelevant to a motivated
The good news is this - there are opportunities everywhere,
everyday. Think outside of the box and approach deals
a little differently. With my focus on higher profit
margins and the type of deals listed above, four deals
now can net me $1 million or more. Before, I had to
do about 100 deals to make that amount of money. For
those of you who are ready, there is a ton of money
to be made in high-end and hot markets.
Don't let a hot market stop you from doing deals 96
they're actually easier to make money in than anywhere
About the Author: Steve Cook
Since 1998 Steve Cook has flipped hundreds of
houses as an active Baltimore-area real estate
investor. Steve’s unique specialty is the “flipping
homes 1-2 punch”, a proven system of real estate
investing that powerfully combines wholesaling
houses. Also the founder of www.FlippingHomes.com,
Steve is dedicated to helping others in this thriving
online community succeed through understanding
and aggressively applying his time-tested, step-by-step
approach to flipping
Get FREE weekly tips from Steve Cook and other
house flipping experts at http://flippinghomes.com