A Plan for Calculating Discounts on a Real Estate Investment

Property investment is a numbers business. As a real estate investor you’ll need to pay close attention to your numbers when purchasing a property in order to make money. Every investor develops their own basic plan for purchasing property to make a profit.

Those just starting out can get confused with all the suggested rates of return that you need to aim for, but each property purchase needs its own specific discount for you to make a good profit.

Start with the Minimum
A basic plan is to start by taking 10% off the asking price or the mortgage of a property you are working with the homeowner to purchase. This can be called your profits or your basic earnings.

From there you’ll continue to lower the amount of money you are willing to pay for that property based on certain negative factors associated with the home. This can be fact that the property doesn’t have a basement or it needs a new roof. You can negotiate a discount for many different problem areas with the bank. Just calculate the costs of these repairs or how much less a buyer would be willing to pay for it and you’ll get the additional discount you need to ask for on the sale price of this property.

Examples of negative issues associated with a property;

• Disrepair; needs new roof, new heater, etc.
• No appliances or old appliances
• No basement
• Only one bathroom for multi-bedroom house
• Economically depressed area
• Lot of other properties for sale around the home
• General shabby look, needs lawn care, new paint job, etc.

When you finish the calculations on discounts you’ll ask for, you’ll have your minimum discount, your additional discount and your total discount. That determines what you’ll be willing to pay for a property. As long as you approach the seller or the bank with proof of these negative issues, you stand a good chance of getting your discounted price.

This method of calculating will allow you to remain true to your financial plan for real estate investing, and also not end up getting into trouble by paying too much for a property.

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