Bargain Properties ? How to play this game.
Fixer’s and forclosure 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 loose not only your investment but your profit as well.
A step by step approach is best in order to make a solid decision before commiting to the investment. Make a check list and use it. And dont forget to add these 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.
I give you…THE LIST:
HOW MUCH AND WHY
Most investors focus on price first.
So the goal is to buy for cheaper then 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 a older craftsman style home those problems are very common. is the foundation in good order? Dont forget holding costs.
Holding costs are one of the biggest profit killers to investors. Taxes, mortgage, comissions to agents (both selling and buying) gas, electric…all theses things add up…and FAST.
A poor understanding of the current market value is another major deal killer. Remember market value is a educated guess at best. No one really knows untill the apprasial is complete.
Check out other property near the one your looking at investing in. what prices are they pulling in? Are they the same size? Lot size close to the one your looking at? Same style of structure?
PAY ATTENTON TO TERMS AND CONDITIONS
Price and location are important this is true. but dont forget about 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.
RESEARCH 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? Dont 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.
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 you?re 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 FORCLOSURES
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.
With small repairs such as painting, minor landscape, and basic flooring, profits may be available but not really worth the risk. More significant profits are found with extremely distressed properties. Plumbing is corroded, the roof needs replacing, and the interior needs to be gutted and remodeled, but the seller is asking 50% of the market value and you can repair it for much less. Always factor in the amount of work that you are looking at?once you have a rough idea of the cost of the expense?add on another 5% as a buffer.
Understand the ZONE
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 proerty is always cheaper then a multi use.
Classic zoning “no-no’s” are garages converted to bedrooms. Non-permitted granny flats and detached garages.