Bargain Properties ? How To Play This Game.
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.
A cautious and methodical approach is best in this decision making process. Keeping that in mind, here are some critical area's that must be considered when looking at real estate bargains for investing purposes.
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:
HOW MUCH AND WHY
Investors ALWAYS see the price first.
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?
Are there problems with the property that will cost a small fortune to fix? Out dated plumbing??? Poor electrical wiring? In older houses these problems are VERY common. Dont forget to consider holding costs.
My personal opinion is that the holding costs 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 in the 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?
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
Experienced real estate investors try to learn everything about the market they are shopping in. Sometimes its the small details that give the property you're looking at the best chance to appreciate. For example: How close is the nearest church? Is the area family friendly? What is the local crime rate... is it close to good school? Where is the closest Fire/police station? Does the neighborhood have a community watch program? Next factor in the local floor plans that surround your target property. Was the last owner primarily concerned with vacancy rates, so they keep prices low instead of upgrading the property? In contrast, your research shows that particular upgrades like air-conditioning, second bathrooms, or enhanced security allow for both lower vacancies and higher rental rates.
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.
FIXER UPPERS AND FORECLOSURES
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.
Know what it is ZONED for.
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.
Garages converted without permits, Granny flats that get added...etc...etc. These are common examples. - 23223
A cautious and methodical approach is best in this decision making process. Keeping that in mind, here are some critical area's that must be considered when looking at real estate bargains for investing purposes.
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:
HOW MUCH AND WHY
Investors ALWAYS see the price first.
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?
Are there problems with the property that will cost a small fortune to fix? Out dated plumbing??? Poor electrical wiring? In older houses these problems are VERY common. Dont forget to consider holding costs.
My personal opinion is that the holding costs 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 in the 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?
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
Experienced real estate investors try to learn everything about the market they are shopping in. Sometimes its the small details that give the property you're looking at the best chance to appreciate. For example: How close is the nearest church? Is the area family friendly? What is the local crime rate... is it close to good school? Where is the closest Fire/police station? Does the neighborhood have a community watch program? Next factor in the local floor plans that surround your target property. Was the last owner primarily concerned with vacancy rates, so they keep prices low instead of upgrading the property? In contrast, your research shows that particular upgrades like air-conditioning, second bathrooms, or enhanced security allow for both lower vacancies and higher rental rates.
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.
FIXER UPPERS AND FORECLOSURES
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.
Know what it is ZONED for.
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.
Garages converted without permits, Granny flats that get added...etc...etc. These are common examples. - 23223
About the Author:
Doc Schmyz has invested all over the US. He built a free website shares Real estate investing information for all over the US. Find real estate information by state
posted by X - Men @ 3:09 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home