What To Look For In A "Bargain Property".
Distressed real estate is the diamond in the rough that all RE investors are seeking. HOWEVER, without doing your research you may lose far more then you will gain.
Use a step by step mind set. "Go by the numbers" when reviewing all the areas of the investment that you want to focus on here are a few things to think about and add to your list.
Please Note: The following elements discussed are not listed in any particular order. Nor do they all hold the same value in relation to each other, but they must ALL be considered in their entirety. The property should meet at least one of the criteria, and should have no unjustifiable issues in any one single area.
Here is the list I have used:
KNOW WHY ON PRICE
Most investors focus on 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)
If not, there may be problems with the property that require major expense to correct. Structural problems such as a cracked foundation or outdated plumbing and electrical wiring. The last two are VERY common in older craftsman homes from the 30-50's. CONSIDER HOLDING COSTS
Holding costs are one of the biggest profit killers to investors. Taxes, mortgage, commissions to agents (both selling and buying) gas, and electric...all these things add up...and FAST.
Poor determination of true market value is another obstacle to the successful deal. Market value is essentially a subjective exercise where the true value is not known until someone buys the property.
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
What areas can you leverage besides price and location? 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
Good investors get in the habit of understanding the lay of the land. What is the local community like? Where are the closest fire/police/EMS services? How good are the local schools? Don't rule out these questions. Make sure to look in to the last houses sold in the area as well as any selling trends you can find.
As the man said...it is all about location.
Most investors think location is the second most critical thing in the investment next to price. Truth be told...it is only critical if you are looking for a long term residence/renter scenario. If you can make a great profit on an ugly house in a less then great area. It may out shine the "perfect condo" by the beach.
FIX AND FLIP 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)
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
Sooo you want to add a third bedroom and second bathroom huh?? Is it zoned for that? Worst thing in the world to have happen is to find out you could have made a pretty penny profit IF you had know what the land was zoned for. ALWAYS ASK.
Understand that a single use zoned property is always cheaper than a multi use.
Watch out for "Owner conversions" where owners, aware of the zoning ordinance, have made changes without the oversight of the local building authority. Garages being converted to second units on a duplex lot are common examples. - 23226
Use a step by step mind set. "Go by the numbers" when reviewing all the areas of the investment that you want to focus on here are a few things to think about and add to your list.
Please Note: The following elements discussed are not listed in any particular order. Nor do they all hold the same value in relation to each other, but they must ALL be considered in their entirety. The property should meet at least one of the criteria, and should have no unjustifiable issues in any one single area.
Here is the list I have used:
KNOW WHY ON PRICE
Most investors focus on 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)
If not, there may be problems with the property that require major expense to correct. Structural problems such as a cracked foundation or outdated plumbing and electrical wiring. The last two are VERY common in older craftsman homes from the 30-50's. CONSIDER HOLDING COSTS
Holding costs are one of the biggest profit killers to investors. Taxes, mortgage, commissions to agents (both selling and buying) gas, and electric...all these things add up...and FAST.
Poor determination of true market value is another obstacle to the successful deal. Market value is essentially a subjective exercise where the true value is not known until someone buys the property.
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
What areas can you leverage besides price and location? 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
Good investors get in the habit of understanding the lay of the land. What is the local community like? Where are the closest fire/police/EMS services? How good are the local schools? Don't rule out these questions. Make sure to look in to the last houses sold in the area as well as any selling trends you can find.
As the man said...it is all about location.
Most investors think location is the second most critical thing in the investment next to price. Truth be told...it is only critical if you are looking for a long term residence/renter scenario. If you can make a great profit on an ugly house in a less then great area. It may out shine the "perfect condo" by the beach.
FIX AND FLIP 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)
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
Sooo you want to add a third bedroom and second bathroom huh?? Is it zoned for that? Worst thing in the world to have happen is to find out you could have made a pretty penny profit IF you had know what the land was zoned for. ALWAYS ASK.
Understand that a single use zoned property is always cheaper than a multi use.
Watch out for "Owner conversions" where owners, aware of the zoning ordinance, have made changes without the oversight of the local building authority. Garages being converted to second units on a duplex lot are common examples. - 23226
About the Author:
Doc has been a investor since the early 1990's. In 2006 he started a real estate investing information website. He hopes to help other investors by offering them the information on real estate services that will help them
posted by X - Men @ 3:50 AM
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