In's And Out's Of 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.
A step by step approach is best in order to make a solid decision before committing to the investment. Make a check list and use it. And dont forget to add these to your list.
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.
Doc's List:
KNOW WHY ON PRICE
Price is the first thing and investor sees.
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)
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.
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.
If youre not up on the market youre shopping in...Youre going to lose money.
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
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.
STUDY 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.
As the man said...it is all about location.
Location is usually seen as the most critical component of finding a good deal next to price. In reality, this matters much more if youre looking in terms of finding a long-term residence than it does for a quick sale. It's more critical to focus on the potential profit margins than the area it's located in. If the ugly home by the dump is more profitable than the fashionable condo downtown, then it's a better deal, aesthetics aside.
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)
Distressed property is a gold mine. IF you know what youre looking at. How old is the roof on the property? How much will it cost to repair/replace? How is the plumbing? Is the foundation/slab sound? Once you have asked a lot of the basic questions...and you have an idea how much it will cost to fix/correct, do yourself a favor. Add 5% as a buffer.
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.
Garages converted without permits, Granny flats that get added...etc...etc. These are common examples.
by: Doc Schmyz
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