In's And Out's Of Bargain Property
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.
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.
I give you...THE 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)
What problems does the property have if any? Old cracked and faulty plumbing? Bad electric? If its an older craftsman style home those problems are very common. Is the foundation in good order? Don't forget 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 fact, used wisely, an investor can pay full price and use this positioning to negotiate lower interest rates or a smaller down payment. Over time, the rental cash flow will be in the black because of the terms agreed upon by the buyer and seller, combined with gradual rent increases and price appreciation.
KNOW 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.
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.
FIX AND FLIP 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.
GET IN A ZONE WITH ZONING
Zoning provides an opportunity to put the property to a higher or better use and is an area many investors ignore. Higher and better use means that the owner is getting the most out of the land. For example, if a lot is zoned for three units but contains a single lot, then it is not getting its highest and best use. Or if a lot is zoned commercial, yet there's a three unit residential building sitting on it, it is not getting its best and highest use, like a business or a store.
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. - 23305
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 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.
I give you...THE 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)
What problems does the property have if any? Old cracked and faulty plumbing? Bad electric? If its an older craftsman style home those problems are very common. Is the foundation in good order? Don't forget 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 fact, used wisely, an investor can pay full price and use this positioning to negotiate lower interest rates or a smaller down payment. Over time, the rental cash flow will be in the black because of the terms agreed upon by the buyer and seller, combined with gradual rent increases and price appreciation.
KNOW 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.
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.
FIX AND FLIP 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.
GET IN A ZONE WITH ZONING
Zoning provides an opportunity to put the property to a higher or better use and is an area many investors ignore. Higher and better use means that the owner is getting the most out of the land. For example, if a lot is zoned for three units but contains a single lot, then it is not getting its highest and best use. Or if a lot is zoned commercial, yet there's a three unit residential building sitting on it, it is not getting its best and highest use, like a business or a store.
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. - 23305
About the Author:
Doc has been a investor since the early 90's. In 2006 he started a real estate investing information website. His goal is to help other investors by offering them the information on real estate services that will help them
posted by Mr. Forex at
3:49 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home