Real estate investors take many forms. Some love to buy and flip homes – definitely a profitable way to invest in real estate if you guard your numbers. Others like to buy and hold homes – creating a portfolio of rental homes and a passive income source for their future. And, others like to find homes to wholesale to these first two types. These are the hustlers, who are out there looking for and finding deals, and turning a quick profit. Lastly, the real estate investor who just wants to invest their savings for a really good return on their investment. So many types of real estate investors, yet most rely on one another.
Flipping Homes in Central Arkansas
Many of us have watches the shows on channels like HGTV and other channels, of folks flipping distressed homes into a beautiful new home for a family. The key to making a solid profit flipping homes is knowing and guarding your numbers. You have to accurately predict the After Repair Value (ARV) of the home you’re considering. And, you have to accurately estimate the necessary repairs, but also include your holding and closing costs. Subtract the costs from the ARV, and subtract the profit you need to make for your time and efforts. You’ve now arrived at the offer you can make on this property. If you always work through this formula, with accurate numbers, profits are likely to be yours.
Landlords in Central Arkansas
Lots of folks enter real estate investing as landlords. These folks have their own formula for find the perfect deal for them. Two numbers they’re watching closely is the capitalization (cap) rate and the return on their investment (ROI). The cap rat is the ratio of Net Operating Income (NOI) to property asset value, and most are looking for a cap rate of 10% or higher. (For example, a property listed for $1,000,000 that generates an NOI of $100,000, the cap rate would be 10%.) The ROI calculates the average annual rent as a percentage of purchase costs. As they purchase their rental properties, they’re building their investment portfolio of passive income from rental income.
Wholesaling in Central Arkansas
The hustlers wholesaling properties are tracking down deals to sell to the flippers and the landlords. So, they’re building relationships with homeowners ready to sell their properties, with the house flippers, and the landlords, and connecting property sellers to buyers. Their marketing costs are the bulk of their expenses, but a good wholesaler understands the formulas the flippers and landlords use for purchases.
Private Money Lenders in Central Arkansas
The last group is folks who have lots of savings and desire a higher rate or return than offered by savings account or CD. Like all of us, they also want as secure an investment as possible to grow their savings. Real estate investments are secured by a property lien, and as flippers are following their formulas for a good ROI, they’re building in a good interest rate for investors who become private money lenders for the purchase and rehab of their flip homes. Once the house is rehabbed beautifully and sold at the ARV price, the investor receives their investment with a nice interest payment back to their account. Many investors keep their money secure earning a good interest with the same good home flipper year-round.
Each of these real estate investors need one another. The flippers rely on the wholesalers and the private money lenders to find them deals and finance those deals, so they can focus flipping a distressed home into a gorgeous show home. The wholesalers need the buys who flips homes and the landlords who buy and hold homes. They would have no deals without these buyers. The landlords love finding the next property with a good cap rate and ROI, so they love wholesalers who bring them that next good buy and hold deal. And, the primary money lenders are just looking to grow their savings as securely as possible, so they are happy to find a flipper who offers a good return on their investments.
If you are a real estate investor in central Arkansas, we’d love to hear from you. As we share resources with one another, we all win. We are flipping and wholesaling in the Little Rock area, so we’re looking for off market deals all the time. When we have more deals than we can personally work, we offer those wholesale deals to other investors. Let’s connect!