In's And Out's Of Bargain Property
Home foreclosures and fixer-uppers have long been a focus of many real estate investors looking to make big profits. Of course, if the target property doesn't meet certain criteria, an investor can lose their investment as well as any profit that was to be gained
A step by step approach is best in order to make a solid decision before committing to the investment. Make a check list and use it. And dont forget to add these to your list.
Nothing on this list is really more important than anything else. Its just here to get you to think about what exactly you need to look for. While you may have an investment that excels in one area...it cant be problem heavy in another.
Doc's List:
KNOW WHY ON PRICE
Investors ALWAYS see the price first.
So the goal is to buy for cheaper than the current market value and sell within market value or above. So how come the seller is offering such a GREAT price. Is it to settle debt??? Is it due to divorce? Death in the family?
What problems does the property have if any? Old cracked and faulty plumbing? Bad electric? If its an older craftsman style home those problems are very common. Is the foundation in good order? Don't forget holding costs.
My personal opinion is that the holding costs are the number one profit killer. YOU HAVE TO BUDGET THEM IN. Commissions to agents, mortgage, closing costs taxes, all repairs...and dont forget the gas and electric.
A poor understanding of the current market value is another major deal killer. Remember market value is an educated guess at best. No one really knows until the appraisal is complete.
Check out other property near the one youre looking at investing in. what prices are they pulling in? Are they the same size? Lot size close to the one youre looking at? Same style of structure?
TAKE ADVANTAGE OF TERMS AND CONDITIONS
What areas can you leverage besides price and location? Financing?
If you have the means you can pay full price but jockey for a FAR lower interest rate or a smaller down payment. Over time your cash flow could be in the black faster due to the terms you set up.
STUDY THE LOCAL MARKET
Experienced real estate investors try to learn everything about the market they are shopping in. Sometimes its the small details that give the property you're looking at the best chance to appreciate. For example: How close is the nearest church? Is the area family friendly? What is the local crime rate... is it close to good school? Where is the closest Fire/police station? Does the neighborhood have a community watch program? Next factor in the local floor plans that surround your target property. Was the last owner primarily concerned with vacancy rates, so they keep prices low instead of upgrading the property? In contrast, your research shows that particular upgrades like air-conditioning, second bathrooms, or enhanced security allow for both lower vacancies and higher rental rates.
LOCATION IS NO TO BE OVER LOOKED
Location is usually seen as the most critical component of finding a good deal next to price. In reality, this matters much more if youre looking in terms of finding a long-term residence than it does for a quick sale. It's more critical to focus on the potential profit margins than the area it's located in. If the ugly home by the dump is more profitable than the fashionable condo downtown, then it's a better deal, aesthetics aside.
FIXER UPPERS AND FORECLOSURES
In the case of a fix and flip and sometimes a foreclosure. It is the job of the investor to factor in the repair costs. A keen eye can save you lots of money in a very short time. (Not to mention a good understanding of home repair work)
Distressed property is a gold mine. IF you know what youre looking at. How old is the roof on the property? How much will it cost to repair/replace? How is the plumbing? Is the foundation/slab sound? Once you have asked a lot of the basic questions...and you have an idea how much it will cost to fix/correct, do yourself a favor. Add 5% as a buffer.
Know what it is ZONED for.
Make sure you research the zoning for the property BEFORE you buy it. If you are thinking of adding a second floor or a granny flat...is the zoning available? Make sure you know before you commit to doing anything that will add or change the SQ footage of the property.
Understand that a single use zoned property is always cheaper than a multi use.
Classic zoning "no-no's" are garages converted to bedrooms. Non-permitted granny flats and detached garages. - 23310
A step by step approach is best in order to make a solid decision before committing to the investment. Make a check list and use it. And dont forget to add these to your list.
Nothing on this list is really more important than anything else. Its just here to get you to think about what exactly you need to look for. While you may have an investment that excels in one area...it cant be problem heavy in another.
Doc's List:
KNOW WHY ON PRICE
Investors ALWAYS see the price first.
So the goal is to buy for cheaper than the current market value and sell within market value or above. So how come the seller is offering such a GREAT price. Is it to settle debt??? Is it due to divorce? Death in the family?
What problems does the property have if any? Old cracked and faulty plumbing? Bad electric? If its an older craftsman style home those problems are very common. Is the foundation in good order? Don't forget holding costs.
My personal opinion is that the holding costs are the number one profit killer. YOU HAVE TO BUDGET THEM IN. Commissions to agents, mortgage, closing costs taxes, all repairs...and dont forget the gas and electric.
A poor understanding of the current market value is another major deal killer. Remember market value is an educated guess at best. No one really knows until the appraisal is complete.
Check out other property near the one youre looking at investing in. what prices are they pulling in? Are they the same size? Lot size close to the one youre looking at? Same style of structure?
TAKE ADVANTAGE OF TERMS AND CONDITIONS
What areas can you leverage besides price and location? Financing?
If you have the means you can pay full price but jockey for a FAR lower interest rate or a smaller down payment. Over time your cash flow could be in the black faster due to the terms you set up.
STUDY THE LOCAL MARKET
Experienced real estate investors try to learn everything about the market they are shopping in. Sometimes its the small details that give the property you're looking at the best chance to appreciate. For example: How close is the nearest church? Is the area family friendly? What is the local crime rate... is it close to good school? Where is the closest Fire/police station? Does the neighborhood have a community watch program? Next factor in the local floor plans that surround your target property. Was the last owner primarily concerned with vacancy rates, so they keep prices low instead of upgrading the property? In contrast, your research shows that particular upgrades like air-conditioning, second bathrooms, or enhanced security allow for both lower vacancies and higher rental rates.
LOCATION IS NO TO BE OVER LOOKED
Location is usually seen as the most critical component of finding a good deal next to price. In reality, this matters much more if youre looking in terms of finding a long-term residence than it does for a quick sale. It's more critical to focus on the potential profit margins than the area it's located in. If the ugly home by the dump is more profitable than the fashionable condo downtown, then it's a better deal, aesthetics aside.
FIXER UPPERS AND FORECLOSURES
In the case of a fix and flip and sometimes a foreclosure. It is the job of the investor to factor in the repair costs. A keen eye can save you lots of money in a very short time. (Not to mention a good understanding of home repair work)
Distressed property is a gold mine. IF you know what youre looking at. How old is the roof on the property? How much will it cost to repair/replace? How is the plumbing? Is the foundation/slab sound? Once you have asked a lot of the basic questions...and you have an idea how much it will cost to fix/correct, do yourself a favor. Add 5% as a buffer.
Know what it is ZONED for.
Make sure you research the zoning for the property BEFORE you buy it. If you are thinking of adding a second floor or a granny flat...is the zoning available? Make sure you know before you commit to doing anything that will add or change the SQ footage of the property.
Understand that a single use zoned property is always cheaper than a multi use.
Classic zoning "no-no's" are garages converted to bedrooms. Non-permitted granny flats and detached garages. - 23310
About the Author:
Doc Schmyz has invested all over the US. His free website shares Real estate investing information for all over the US. Find real estate information by state
posted by Mr. Forex at
11:55 AM
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