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.
Doc's List:
KNOW WHY ON PRICE
Investors ALWAYS see the 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.
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.
PAY ATTENTION TO TERMS AND CONDITIONS
While price and location are important; don't discount other profit leveraging tools like the terms of the financing.
If you have the means you can pay full price but jockey for a FAR lower interest rate or a smaller down payment. Over time your cash flow could be in the black faster due to the terms you set up.
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.
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.
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.
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.
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.
Garages converted without permits, Granny flats that get added...etc...etc. These are common examples. - 23159
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.
Doc's List:
KNOW WHY ON PRICE
Investors ALWAYS see the 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.
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.
PAY ATTENTION TO TERMS AND CONDITIONS
While price and location are important; don't discount other profit leveraging tools like the terms of the financing.
If you have the means you can pay full price but jockey for a FAR lower interest rate or a smaller down payment. Over time your cash flow could be in the black faster due to the terms you set up.
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.
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.
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.
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.
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.
Garages converted without permits, Granny flats that get added...etc...etc. These are common examples. - 23159
About the Author:
Doc has been a investor since the early 90's. In 2006 he started a real estate investing information website. His goal is to help other investors by giving them the information on real estate services that will help them
posted by X - Men @ 2:19 AM
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