Real Estate Property AnalysisA good real estate property analysis reveals the potential profit on a flip, or a long term hold. This means identifying every potential expense that will reduce your margins.

Depending upon the property, expenses can include a new roof or a newly remodeled kitchen or bath. Watch out for mechanical systems. A new HVAC system will costs thousands.

There can be soft costs such as funds needed for permits and other fees. But don’t forget to include the cost of obtaining financing and don’t make mistakes that can eat away at your profit.

When financing a flip, you can expect to provide a down payment to the lender.

Your down payment is not a cost but a hit to your cash flow. You won’t get those funds back until you sell the property. But the down payment is a requirement of obtaining a loan, and there are hard costs that you won’t get back.

The most obvious cost is the interest rate on your loan.

On a $200,000 loan with a 4.00 percent rate, you can expect to pay just under $2,000 in interest charges over 90 days.

You can lower your interest rate by paying a one discount point to your lender, or $2,000, to obtain a 3.75 percent rate.

The payment is then lowered to $926.23 from $954.83 for a savings of $28.60 per month. However, you can quickly see that paying $2,000 to save $28.60 for three months is a bad deal.

Doing a good real estate property analysis means analyzing your cost of funds for short term projects. You should pay less attention to the interest rate and concentrate solely on fees.

In fact, there are ways to reduce your fees significantly by actually increasing your interest rate. The same way lenders can lower your rate by charging points, they can increase your rate and reduce the cost of your funds.

Using the same scenario, you can raise your rate to 4.25 percent and increase your monthly payment by $29.05.

Now, the lender can credit you $2,000 toward your closing costs. Doing so, you pay just under $90 and saved $2,000.

Interest rates on loans are the marquee. What lenders don’t advertise are the rates associated with a loan.

Pay attention to the fees, they can impact your bottom line more than a rate.

Talk soon,

David Slabon