In's and out's of Bargin Property
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.
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.
Here is the list I have used:
HOW MUCH AND WHY
Price is the first thing an investors sees.
So the goal is to buy for cheaper then 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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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
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.
YOU MUST ANALYZE similar properties in the area. Keep in mind that prices are set at the margins and may reflect the extremes of a particular housing market environment.
TAKE ADVANTAGE OF TERMS AND CONDITIONS
While price and location are important; dont discount other profit leveraging tools like the terms of the 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.
KNOW 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 IS NO TO BE OVER LOOKED
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 scenerio. If you can make a great profit on a ugly house in a less then great area. It may out shine the "perfect condo" by the beach.
FIXER UPPERS 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 your 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.
GET IN A ZONE WITH ZONING
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.
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 tennet or two? Zoning is a gift or a curse depending on your plans with the property...make sure you know before you buy it.
Classic zoning "no-no's" are garages converted to bedrooms. Non-permitted granny flats and detached garages.
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.
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.
Here is the list I have used:
HOW MUCH AND WHY
Price is the first thing an investors sees.
So the goal is to buy for cheaper then 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
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.
YOU MUST ANALYZE similar properties in the area. Keep in mind that prices are set at the margins and may reflect the extremes of a particular housing market environment.
TAKE ADVANTAGE OF TERMS AND CONDITIONS
While price and location are important; dont discount other profit leveraging tools like the terms of the 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.
KNOW 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 IS NO TO BE OVER LOOKED
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 scenerio. If you can make a great profit on a ugly house in a less then great area. It may out shine the "perfect condo" by the beach.
FIXER UPPERS 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 your 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.
GET IN A ZONE WITH ZONING
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.
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 tennet or two? Zoning is a gift or a curse depending on your plans with the property...make sure you know before you buy it.
Classic zoning "no-no's" are garages converted to bedrooms. Non-permitted granny flats and detached garages.
About the Author:
Doc has been a investor since early 1990's. In 2006 he started a real estate investing information website. His goal is to help or investors by offering m information on real estate services that will help m
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