Are you buying the low end of the market, the mid price range of the market, or the upper end of the market? How do you know?
You should analyze the market trends over the past 3 to 5 years if possible and look for trends for the lower third of the market, middle third and upper third of the market by zip code and neighborhood if large enough.
In analyzing your market, you will likely find that one segment of that market is more volatile that the others. The spread between original price, list price and sales price will tend to swing broader in that segment. The potential for bigger profits can exist here, but so can't the losses, because of its volatility. You may be better off choosing a less volatile segment, based on the trends you see.
The strategy here is for flipped houses and short term holds of a year or less. Longer term holds are based more on cash flows, rental rates and those trends in the market.
Where do you get this information? REALTORS have it, and you can see trend lines on Zillow and Trulia, but the more granular information is available from REALTORS and real estate consultants and others who have access to MLS data in your chosen market.
You decide your own tolerance for risk. You decide the margin you are willing to accept based on the cash you're investing, market time and expected return.
Good luck!
Chris Michaud
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