I'm sure just about every newbie as well as every guru has gone through buyer's remorse on their first couple of deals (maybe even more). Over the weekend, I sat down and really burned some numbers on this deal I'm making. Now, I am starting to feel buyer's remorse for a couple of reasons.
First, after running the numbers again for various retail scenarios, I came up with a high-end profit of $12k - and that's if I can have it resold by the end of May for $129k. The low-end ($5k) is a forecast of not selling until the end of Sep for $129k. Now, I'm not bemoaning the fact that I can get $5k-$12k of profit from the deal, it's just much lower than I had originally expected. Again, this is if I resell retail (which I would probably do).
The second issue I have is that no matter what properties come down the MLS now, I may be stuck until I can unload this property. My loan officer is already telling me that even though I have excellent credit, my debt ratio is too high to get any more large loans. My interpretation is that unless I can find a property for $50k or less, I can forget it until I get rid of this one. Yes, there are alternatives like HML/PML's, but even using them I have to face the realization that I may not have the monthly capital required.
Even though those two issues are in the forefront of my mind, I also know there are alterative ways to make money in RE, using little if any money. In fact, maybe this is the stimulus I need to expand my comfort zone a little more and start dealing with motivated sellers, instead of motivated properties. :-)
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I also ran numbers for a L/O scenario. The criteria I gave was as follows:
- Option Price: $134,000
- Option Fee: $5,000
- Rent: $1,200
- Security Deposit: $600
- Term: 1 year
- 75 DOM's (days on market)
- T/B responsible for all repairs.
If the T/B buys at the end of the term, I would pocket roughly $22k. If the T/B does not exercise the option, I still make a $9k profit (at the end of the term). I didn't factor in depreciation, which would add about $3.5k in savings. I would have to pay tax on that (I believe) when I sell, thereby reducing the overall profit a little.
Sometimes I think part of our remorse is the fact that we also lose the anticipation of purchase. Now comes the work. Grin and bear it, you'll come out ahead. and if you don't....... Tuition!
Mike - Thanks for the words of encouragement. It really seems once you are just about to quit because no deals are happening, you get your first deal.
BGinvestor - You are absolutely right. Too often I keep thinking of the profit in terms of money, when I should be looking at the broader picture here. Thanks!
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