What To Look For In A “Bargain Property”.
Fixer’s and foreclosure properties have always been the “jewels” that RE investors look for in order to make big profits. However if you dont do your home work before hand you may lose not only your investment but your profit as well.
A cautious and methodical approach is best in this decision making process. Keeping that in mind, here are some critical area’s that must be considered when looking at real estate bargains for investing purposes.
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.
Here is the list I have used:
HOW MUCH AND WHY
Investors ALWAYS see the price first.
They search for properties they think are selling below market value. This makes sense buy low and sell high right?? However think about the reasons behind the sales price? What is their motivation? Are they relocating or in financial duress? The 3 D’s come in to play here most of the time. (Death Divorce, Debt)
Are there problems with the property that will cost a small fortune to fix? Out dated plumbing??? Poor electrical wiring? In older houses these problems are VERY common. Dont forget to consider 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.
If youre not up on the market youre shopping in…Youre going to lose money.
Price other property in the area. Come as close to the size/style/lot size you are looking at buying.
TERMS AND CONDITIONS CAN HELP YOU
While price and location are important; don’t discount other profit leveraging tools like the terms of the financing.
In fact, used wisely, an investor can pay full price and use this positioning to negotiate lower interest rates or a smaller down payment. Over time, the rental cash flow will be in the black because of the terms agreed upon by the buyer and seller, combined with gradual rent increases and price appreciation.
KNOW THE LOCAL MARKET
Learn everything you can about the market your shopping in. What are the schools like? How close is the local hospital? Is there a local police station or sub-station? Also look at the floor plans of surrounding homes. How many bed/baths? Whats the average price in the area? What are the prices of the last homes sold in the area? Etc…Etc.
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.
FIX AND FLIP AND FORECLOSURES
A familiar area ripe for investment picking is distressed properties or fixer-uppers. Of course these are the houses that need repairs to some degree. And the investor’s job is to discount the costs of these repairs enough so that the profit is still suitable.
Fixer properties are a treasure trove to a savvy investor. If you have a good eye for details and can spot maintance problems you can make a nice return on your investment. Things like a bad roof, poor plumbing or a bad foundation can be very costly to repair. Once you have an idea of what youre looking at for repair cost, do yourself a favor and add a little buffer say 5%…just to be safe.
GET IN A ZONE WITH ZONING
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.
These are often bargains because the price is based on current use. So the single unit residential is priced low while the double unit duplex could be sold higher or rented out. Harder to find as developers stay more aware of zoning allowances these days.
Classic zoning “no-no’s” are garages converted to bedrooms. Non-permitted granny flats and detached garages.
Doc Schmyz has invested all over the US and Canada. He built a free free website shares Real estate investing information for all over the US. Find real estate information by state
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