Typical Earning Potential
Earnings & Income Disclaimer
Earnings & Income Disclaimer
In real estate, "typical" results are very difficult to determine, primarily because property values vary from one neighborhood to another - and there are tens of thousands of neighborhoods in America. Still, there are certain ways you can determine what might be typical for you, provided you diligently apply the principles and tools provided with "The Simple Man's Guide". These "typical" examples are what you can expect as you become more experienced. These estimates should in no way be construed as what any particular individual - i.e. you - would earn. These are simply sound estimates of the level(s) the average individual should be able to reach if that individual dedicates him/herself to using our program. How do we know these are "typical"? Because these estimates are considered standard throughout the industry and we do not recommend entering into any deals that do not have at least the minimum earnings suggested (though you are free to accept less profit if you wish).
Take "wholesaling/Assigning" for example. Because assignment fees are generally much smaller than profits from other methods, it would take a lot more transactions to earn $100,000 a year, while you could likely earn that much with just one or two good rehab projects. Assignment fees can vary greatly, of course, but as a rule of thumb they are generally in the vicinity of 10% of the amount of equity you are passing to the buyer. To determine your potential, first determine the value of the average property in your area that you plan on assigning, the maximum amount you would offer for that property, and then figure 10% of the difference. For example, if you will only pay $130,000 for a $150,000 property, your assignment fee should be a minimum of $2,000 - 10% of the $20,000 in equity you are passing on. At that rate, you would need to assign 50 properties a year to earn $100,000. NOTE: You can always try to negotiate a higher fee, but 10% should be the low end. What home buyer would not pay $2,000 to save $20,000?
Using the double escrow, your profit on that same property would obviously be the difference between the purchase price ($120k) and your sale price, less expenses. If you sell for $140k to provide incentive to a buyer, your profit would be $20,000, less expenses. You would then require at least 5 transactions per year to earn $100k. With the double escrow, there is no minimum, maximum or average profit - the profit is dictated strictly as the difference between the buy price and the sell price, both of which are determined by the parties involved.
Rehabs are the most difficult of the methods, but also the most profitable, by far. Because rehabs are riskier, more time-consuming and requires substantial investment, the profit should reflect that, and it usually does, as long as you take precautions not to underestimate the cost and time. The first rule of investing in anything is that the higher the risk and/or investment, the higher the potential reward. When rehabbing, you first need to crunch the numbers. The first step is to determine the After Repair Value (ARV). From this amount you would subtract the estimated costs of repairs plus 10% (for overruns), the estimated holding costs (mortgage, taxes, insurance etc. during the period of holding, until sold), Realtor commission when you sell, and the amount of profit you expect for your effort - generally a minimum of 30% of ARV. The balance is the maximum you should pay for the property. In a case where the ARV is $200,000, repair costs $54,000, $6800 holding costs, $8,000 Realtor commission and $60,000 net, the balance would be $71,200. That is roughly the maximum you would offer for the property because of its poor condition and the time & work involved in making it saleable. Of course, if you wish to accept a lower net, you could offer more - that is a personal decision. As you can see, it would only take a couple of good rehabs to net $100k per year. But it is hard work.
In any other type of transaction, you should attempt to net a minimum of 10% of the actual market value of the property. No exceptions. You could easily do almost as well in the stock market, so don't settle for less in real estate. As you gain more experience and hone your negotiation skills, you should be able to easily up that to 20% or more.
Bear in mind, if property values in your area are higher, your net profit would be proportionately higher. And vice versa if property values are lower in your area.