What are some rookie mistakes people make on their first investment deal?
Paying too much for the house. You need to back your way into the price. Knowing what a house will sell for fixed up or if it is a buy and hold, what it will rent for, is the most important number you need to make a decision.
The next most important number is the rehab cost.
Once you know these numbers then you know what you can pay for it. Most seasoned investors agree that you should never be in a house for more than 70% of the after repaired value (ARV) and you want to make sure your rent is 110% of the all in cost. Here are the formulas.
Fix and flip: ARV x 70% – rehab = purchase price. Ex: 150000 x 70% = 105000 – 30000 (rehab) = 75000 purchase price.
Buy & Hold: All in price or purchase price (if no rehab) x .011 = rent 80,000 x .011 = 880.