“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 specific criteria, an investor can lose their investment as well as any benefit that was to be gained
A step by step approach is best to make a solid decision before committing to the investment. Make a checklist and use it. And don’t 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 about 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:
WHY THE ASKING PRICE
Most investors focus on price first.
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? Outdated plumbing??? Poor electrical wiring? In older houses, these problems are widespread. Don’t forget to consider holding costs.
My personal opinion is that the holding costs are the number one profit killer. YOU HAVE TO BUDGET THEM IN. Commissions to agents, mortgage, closing costs taxes, all repairs…and don’t forget the gas and electric.
Weak determination of real market value is another obstacle to the successful deal. Market value is inherently a subjective exercise where the real value is not known until someone buys the property.
Check out other property near the one you are looking at investing in. What prices are they pulling in? Are they the same size? Is lot size close to the one you’re looking at? Same style of structure?
TAKE ADVANTAGE OF TERMS AND CONDITIONS
Price and location are essential; this is true. But don’t forget about the 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.
KNOW THE LOCAL MARKET
Right 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 into the last houses sold in the area as well as any selling trends you can find.
LOCATION IS NO TO BE OVERLOOKED
Location is usually seen as the most critical component of finding a good deal next to the price. In reality, this matters much more if you’re 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.
FIX AND FLIP AND FORECLOSURES
A common 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.
A distressed property is a gold mine. IF you know what you are 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 fundamental 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.
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 plan available? Make sure you know before you commit to doing anything that will add or change the SQ footage of the property.
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.
Classic zoning “no-no’s” are garages converted to bedrooms. Non-permitted granny flats and detached garages.”
How To Do it Bargain Property