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.
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.
Here is the list I have used:
WHY THE ASKING PRICE
Price is the first thing an investors sees.
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)
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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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
My personal opinion is that the holding cost 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.
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 inthe 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 some cases a full price purchase can allow you to leverage the terms to mean a lower intrest 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 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.
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 your going this route make sure you have a good eye for the details and a solid understanding of basic home repair.
Fixer properties are a treasure trove to a savy 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 a idea of what your looking at for repair cost, do your self a favor and add a little buffer say 5%…just to be safe.
Know what it is ZONED for.
Zoning provides an opportunity to put the property to a higher or better use and is an area many investors ignore. Higher and better use means that the owner is getting the most out of the land. For example, if a lot is zoned for three units but contains a single lot, then it is not getting its highest and best use. Or if a lot is zoned commercial, yet there’s a three unit residential building sitting on it, it is not getting its best and highest use, like a business or a store.
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.