Bargain Properties ? How To Play This Game.
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
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.
Keep in mind...this isnt listed in any particular order. Its just things to keep in mind the target real estate should meet at least one of the criteria, but not be too heavy in any other areas.
Doc's List:
WHY THE ASKING PRICE
Most investors focus on price first.
We are all looking for below market value. Buy for a little, sell for a lot. But why are they selling so low? Is it to solve one of the "3 D's"? (Debt, Death, Divorce)
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.
In my opinion the most common over looked profit drainer is underestimating the liquidation costs of holding and selling the property. Things to keep in mind and budget into your holding costs are: commission payments to real estate agents, closing costs, mortgage payments, taxes, plus repair and maintenance costs. Also electric and water.
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.
Price other property in the area. Come as close to the size/style/lot size you are looking at buying.
TAKE ADVANTAGE OF TERMS AND CONDITIONS
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. LOCATION. LOCATION.
If your shooting for a long term tenet or residence then location is the second most critical thing to look at...however if you have a chance to turn a good profit for a ugly house in a less than 4 star area...that profit might out shine a nice little bungalow on the beach.
DISTRESSED REAL ESTATE
Most new investors and some seasoned ones, seek out fix and flips and distressed foreclosures for the opportunity to increase the profit margin. If youre going this route make sure you have a good eye for the details and a solid understanding of basic home repair.
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.
Understand the ZONE
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.
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. - 23217
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.
Keep in mind...this isnt listed in any particular order. Its just things to keep in mind the target real estate should meet at least one of the criteria, but not be too heavy in any other areas.
Doc's List:
WHY THE ASKING PRICE
Most investors focus on price first.
We are all looking for below market value. Buy for a little, sell for a lot. But why are they selling so low? Is it to solve one of the "3 D's"? (Debt, Death, Divorce)
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.
In my opinion the most common over looked profit drainer is underestimating the liquidation costs of holding and selling the property. Things to keep in mind and budget into your holding costs are: commission payments to real estate agents, closing costs, mortgage payments, taxes, plus repair and maintenance costs. Also electric and water.
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.
Price other property in the area. Come as close to the size/style/lot size you are looking at buying.
TAKE ADVANTAGE OF TERMS AND CONDITIONS
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. LOCATION. LOCATION.
If your shooting for a long term tenet or residence then location is the second most critical thing to look at...however if you have a chance to turn a good profit for a ugly house in a less than 4 star area...that profit might out shine a nice little bungalow on the beach.
DISTRESSED REAL ESTATE
Most new investors and some seasoned ones, seek out fix and flips and distressed foreclosures for the opportunity to increase the profit margin. If youre going this route make sure you have a good eye for the details and a solid understanding of basic home repair.
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.
Understand the ZONE
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.
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. - 23217
About the Author:
Doc Schmyz has worked with investors all over the US and Canada. He built a free website shares Real estate investing informationfor all over the US. Find real estate information by state
posted by X - Men @ 5:42 AM
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