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.
I give you...THE LIST:
WHY THE ASKING PRICE
Price is the first thing and investor sees.
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?
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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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
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.
PAY ATTENTION TO TERMS AND CONDITIONS
Price and location are important this is true. But dont forget about the financing.
In some cases a full price purchase can allow you to leverage the terms to mean a lower interest rate or smaller down payment.
RESEARCH 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.
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
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.
Know what it is ZONED for.
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. - 23200
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.
I give you...THE LIST:
WHY THE ASKING PRICE
Price is the first thing and investor sees.
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?
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
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.
PAY ATTENTION TO TERMS AND CONDITIONS
Price and location are important this is true. But dont forget about the financing.
In some cases a full price purchase can allow you to leverage the terms to mean a lower interest rate or smaller down payment.
RESEARCH 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.
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
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.
Know what it is ZONED for.
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. - 23200
About the Author:
Doc has been a investor and project manager since the early 1990's. In 2006 he started a online real estate investing information website. His goal is to help other investors by offering them the information on real estate services that will help them
posted by X - Men @ 2:18 AM
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