Fixer’s and foreclosure 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 lose not only your investment but your profit as well.
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.
Nothing on this list is really more important than anything else. Its just here to get you to think about what exactly you need to look for. While you may have an investment that excels in one area…it cant be problem heavy in another.
I give you…THE LIST:
HOW MUCH AND WHY
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. Dont forget to consider holding costs.
In my opinion the most common over looked profit drainer is underestimating the liquidation costs of holding and selling the property. Things to keep in mind and budget into your holding costs are: commission payments to real estate agents, closing costs, mortgage payments, taxes, plus repair and maintenance costs. Also electric and water.
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.
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.
In some cases a full price purchase can allow you to leverage the terms to mean a lower interest rate or smaller down payment.
RESEARCH 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.
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.
FIX AND FLIP 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 properties are a treasure trove to a savvy 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 an idea of what youre 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.
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.
Watch out for “Owner conversions” where owners, aware of the zoning ordinance, have made changes without the oversight of the local building authority. Garages being converted to second units on a duplex lot are common examples.
Doc Schmyz has worked with investors all over the US. He owns a free website that shares Real estate investing information for all over the US. Find real estate information by state
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