Accredited investors are often asked to provide short term funds for any variety of entrepreneurial projects. From providing capital for a startup to funding an expansion for an existing company, the end game is always the same—how does the investor get paid back and when? When considering financinghow to evaluate a purchase the development of real estate properties, the end result is also the same. How does the investor make money?

With a real estate transaction, providing funds to a private individual to acquire, rehabilitate and sell a property is relatively straightforward. How much does it cost now, how much to repair and what will the property be worth once completed.

How much the property is currently worth is more than just an asking price. First, comparative properties that have recently sold must be researched. What did they sell for and how long did it take? Was the properties sold in good condition or did they all need some work? If they did need work, how much were the repairs? Using the services of a good real estate agent, it’s easy to get a decent range on the current value of the existing unit.

For repairs, the property needs to be brought to at least what is considered “good” condition, as would be noted on an appraisal report or inspection. A property in good condition is easily financed and opens up more buyers.

The real estate agent can also make the determination regarding a final list price again by comparing similar properties in the area that have recently sold. There will always be adjustments made to the final price but providing financing to an individual wanting to buy and renovate a property, means following the three basic steps—what’s it worth now, how much to fix and what will it be worth once repaired? If those three questions are answered and the numbers clearly work, it’s surely something to consider.