Investor Series…

8 Steps to Making Huge Profits on Philadelphia Investment Properties.

One good way to make money in Philly real estate is by buying properties that are in need of repair.  Also known as “fixers,” “ugly properties,” or “shells,” homes and investment properties requiring substantial work often have the highest upside potential.

But it’s important to be careful.  There are many local Philadelphia stories of investors who are so anxious to get themselves into a deal that they pay way too much for a property. The last thing you want to do as an investor is to  overpay for a property and create a large shortfall in your cashflow.

One key thing to remember is that you actually create your property when you buy a property, not when you sell.  The best way to make sure that you have a bargain is to do your homework.

Here below are 8 steps to making massive profits on Philadelphia Fixer-Upper Real Estate.

These simple steps will give you the ammo you’ll need to ensure that there’s gold in them thar bricks.

Step 1- Figure out the “ARV” (After Repaired Value)

There are a number of ways to gather the info needed to figure our what your Philly investment property will be worth once you’re done fixing it up. A first step might be to use the nifty tool on our “What’s Mine Worth” page.  This will give you a sense of what other properties in the area immediately surrounding your target property are going for.  Once you’ve employed an online calculator such as ours, you’ll want to make sure the numbers are accurate. Computers can only go so far in guaging the value of a property, especially in a city like Philadelphia where values can fluctuate drastically on a block by block basis.

This is where your “City Space” real estate agent comes in. Ask your agent questions such as:

1. Hey, I got this computer evaluation…Is it accurate?  Why not? 

2. Are these good comps?

3. Is this location hotter than it looks at first glance?  Maybe first time buyers who can no longer afford Center City are starting to see this area as a solid alternative?

   Step 2 - Determine your Closing Costs on the Purchase of the Property

   There are a lot of costs that can start to add up when you’re ready to close on a piece of Philadelphia Real Estate.  One notable closing cost that often shocks would-be buyers is Philadelphia’s Transfer tax, which at the time of this article, is 4% of the purchase price.  Typically buyer and seller split this cost, for a total of 2% each, which is a fair amount higher than what you’d find in most other parts of the country. Here are a few other closing costs to consider:

* Down Payment
* Real estate commission
* Appraisal
* Loan closing costs and/or points
* Home inspection
* Termite inspection
* Soil inspection (if there is an underground oil tank, etc.)
* Finder fees (for any non real estate agent that may have helped you find the
   property.)

Step 3 - Calculate your Carrying Costs

Many investors misinterpret expected profits by forgetting to include “Carrying Costs” in their calculations. Be sure to include the following:

• 6 mortgage payments Be sure to have enough money set aside to continue to pay the mortgage during the time it takes to repair and market the property.

• 6 months of taxes and insurance

• 6 months of Utility Costs.

If you want to be conservative in your calculations, you might want to even up the 6 months to something like 9 or 12.  This way, you increase the likelihood that the repairs will be finished ahead of the timeline you need to gain your expected return on investment.

Step 4 - Add up your budget for repair costs

If you are not good at estimating what repairs will cost, be sure to get some contractor estimates. A few of our City Space agents are also seasoned investors and should be pretty good at helping you estimate repair figures. You’ll want to be sure to  include everything from flooring, paint and light fixtures, to plumbing electrical and exterior masonry and landscaping. A conservative approach might be to add 10-20% on top of any estimates you arrive at. You might not feel that you’ll need this extra cushion, but more times than not you will end up going
over budget. 

Step 5 - Determine Sale Costs

Next you need to figure out what it will cost to sell the property. If you decide not to hire a pro to market the property you might need to budget for advertising and marketing items such as Pay-Per-Click Marketing, Single Property Websites, and the costs of hiring a professional staging company.  If you do hire a City Space agent, you’ll want to factor in the anticipated sales commission.

Step 6 - Determine Closing Costs on the Sale of the Property Remember you’ll have that pesky 2% transfer tax as well as some likely closing cost assistance for the buyer.
Step 7 - Decide on your profit.This is the fun part. You actually get to decide on how much  money you want to make on the property. You really do
control how much profit you’re going to make on the project. Keep in mind that you are going to be investing a lot of time into 
the property over the coming weeks and months, so be sure to pay yourself what you’re worth.  Ideally, you’ll establish an hourly or daily rate that is higher than what you’re currently earning for your time!Some investors wouldn’t settle on less than $15,000 minimum for a profit on a
fixer property. Some won’t even consider a profit unless it’s going to yield 6 figures.

Step 8 - Calculate the Highest Amount You Can Pay For The Property In Question

Take your Predetermined After Repair Value and Subtract The Following:

* Closing costs on Purchase
* Carrying costs
* Repair costs
* Sale costs
* Closing costs on sale
* Required Profit
You’ll be left with the Higherst Amount you can afford to pay for
the and still make the profit you are looking for.

Following all these steps will take a little time, but it’ll be worth it.  The more offers you make,
the quicker you’ll get at compiling the data and making your purchase decisions.

Now…Get started searching! Visit our Main Philadelphia Real Estate Investment Search Page for convenient Property Search Links.

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