Defining Your Real Estate Investing Sweet Spot

Here are some questions you need to ask yourself in order to define your sweet spot. By answering these questions, you’ll know and understand the best cities and communities in your area for buying and selling real estate.

    1. What are the parts of town where houses that we buy sell quickly?

    2. If we get a good discount, can we resell it quickly?

    3. Do buyers want to live there? Are people buying there?

    4. Is it a desirable area?

    5. Is it a vacant house?

    6. Do we already have a potential buyer?

    7. Dismissed Chapter 7 Bankruptcy?

    8. Are there above average to excellent school districts?

    9. Is it a single family home, duplex, triplex or fourplex?

    10. Is it in a “War Zone” (dangerous neighborhood)?

    11. Is the interior BPO already completed (for short sales)?

    12. Is there a reluctant Seller or Realtor?

    13. Are there lots of other investors in the area who can pay cash?

    14. Any fraud apparent?

You’ll also want to consider what exit strategy you are implementing.

Here’s a perfect example:

I have a good friend in the Cleveland area that has closed over 1,300 real estate transactions. His name is Brian Stark, and he invests with his brother, Paul. They do a lot of buying and keep just about everything they buy for long term rental income. They own a construction company, a hard money lending business and a management company.

They get loads of leads every day and they operate on the near east side of Cleveland. What they primarily do is obtain leads, buy houses that need work, rehab them and keep them for long term cash flow and rental income. The reason they keep most of the properties is because their sweet spot where they invest is great for low-priced properties ($10,000-$50,000), which cash flow incredibility well. They know their sweet spot and their exit strategy

I also do rehabs with my brother, Mark. At any point, we have 3-5 rehab projects happening. We have chosen to invest in a completely different part of town from Brian and Paul; a different “sweet spot.” We are looking for properties that we can buy inexpensively, rehab and sell outright to FHA buyers. We don’t want to keep the properties we rehab. Our exit strategy is the exact opposite of Brian and Paul Stark.

Here’s the thing: both our strategies work because we know our “sweet spots.” My exit strategy of selling outright would never work in Brian’s sweet spot because properties do not sell quickly there.

Brian’s sweet spot of keeping houses for cash flow wouldn’t work in my sweet spot because properties are more expensive and the rent roll won’t cover the PITI (principal, interest, taxes and insurance), as they do in Brian’s area.

So you have to know your sweet spot for the type of investing strategy you are executing. Here’s a hint: Wholesaling and cash flow works best in the inner city, lower income areas, owner financing areas and first tier suburbs, where properties are less expensive. Short sales and rehabbing with an outright sale as an exit strategy that works best in the second and third tier suburbs, where the properties are middle-to-high income with lots of FHA buyers, prime borrowers and buyers who can put down 20% and get a full income, documentation loan. To learn how to take your real estate investing business to the next level, visit today.
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