Bargain Properties ? How To Play This Game.
by Doc Schmyz
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 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.
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 must 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.
Here is the list to used:
KNOW WHY THE PRICE
Most investors focus on price first.
They search for properties they think are selling below market value. This makes sense buy low and sell high right?? However think about the reasons behind the sales price? What is their motivation? Are they relocating or in financial duress? The 3 D's come in to play here most of the time. (Death Divorce, Debt)
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. Don't forget to consider 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.
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
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 interest rate or smaller down payment.
STUDY THE LOCAL MARKET
Good investors get in the habit of understanding the lay of the land. What is the local community like? Where are the closest fire/police/EMS services? How good are the local schools? Don't rule out these questions. Make sure to look in to the last houses sold in the area as well as any selling trends you can find.
As the Man Said...It is All About 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.
FIXER UPPERS AND FORECLOSURES
In the case of a fix and flip and sometimes a foreclosure. It is the job of the investor to factor in the repair costs. A keen eye can save you lots of money in a very short time. (Not to mention a good understanding of home repair work)
Fixer upper properties are a treasure trove to a savvy investor. If you have a good eye for details and can spot maintenance 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 an idea of what you're looking at for repair cost, do yourself a favor and add a little buffer say 5%...just to be safe.
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 square footage of the property.
Think of it this way, what could make you more money...a single small house on the land you just invested in...Or a duplex on the same land? One tenet or two? Zoning is a gift or a curse depending on your plans with the property...makes sure you know before you buy it.
Classic zoning "no-no's" are garages converted to bedrooms. Non-permitted mother in-law apartment and detached garages.
About the Author:
Doc has been a investor since the early 1990's. In 2006 he started a real estate investing information website. He hopes to help other investors by giving them the information on real estate services that will help them