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3 Tips for Managing Your Margins on Tight REI Deals

Posted by Ken Meyer on Tue, Apr 07, 2015

real estate investment planningA statistic published by the National Association of Realtors (NAR) confirms the fact that the available existing housing market is not booming. In fact, the market was losing momentum as 2014 closed. Cash sales, mainly investors, only comprised 25% of the total sales in November. This was down 27% from October. The median housing price was near $200,000 and climbing. Investors were watching for a cost decline that could drive down prices on their existing properties. It didn't materialize. At a minimum that prevented immediate losses to existing holdings.

"Tight" is an interesting term for the current market situation. Interesting, but far from untenable if the RE investor knows how to keep their strategy just as tight and get down to evaluating every aspect of the deal. Now is the time to take hard looks at your entire operation from the ground up.

Here are some tips for managing your margins on tight REI deals:

Short Supply

Not so long ago, when so many lost jobs and homes, there were investment opportunities from the REO market. Those homes were in buyers’ market supply. With the shortening up of that supply, investors may find themselves in stiffer competition for those market offerings. Taking a serious look at where you are and what you can reasonably make a return on needs to override the push to acquire. Be certain when to move forward. Realize when to step back.

Going Beyond General Inspection

A thorough general inspection is just the beginning when you are looking at hard margins. Understand what you find acceptable for needing repair and what is above your risk level. Apply this every time. Materials prices are increasing. Overestimating what you can handle within your budget can leave you short on dealing with hidden issues. The wiggle room is at 'inches not feet', currently. Keep that in consideration on your budget projections.

Review Your Labor Costs

Understanding whether prior cost variances were simple miscalculations, hidden issue overruns, or an inefficient labor crew is a serious project. With the belt-tightening, these points must be given a critical eye. If it is, in fact, your labor crew, it may be time to make a change. Just because you've worked together before does not mean you can afford a crew that doesn't meet project milestones effectively. This is your investment, make the right choice.

Use this as a checklist:

  • Get the market facts. Your regional NAR offices will have more specific information on your local market.
  • Right size and refine your operation.
  • Make certain your funding choice is just as tight for interest and fees.

Trust Deed Capital is a hard money solution with experience and competitive rates. Please, contact us with your REI requirements.

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