Bargain Properties ? How to play this game.
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.
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 a investment that excels in one area...it cant be problem heavy in another.
Doc's 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)
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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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.
Check out other property near the one your looking at investing in. what prices are they pulling in? Are they the same size? Lot size close to the one your looking at? Same style of structure?
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.
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 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 FORCLOSURES
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.
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.
Understand that a single use zoned proerty is always cheaper then a multi use.
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.
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 a investment that excels in one area...it cant be problem heavy in another.
Doc's 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)
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.
Check out other property near the one your looking at investing in. what prices are they pulling in? Are they the same size? Lot size close to the one your looking at? Same style of structure?
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.
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 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 FORCLOSURES
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.
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.
Understand that a single use zoned proerty is always cheaper then a multi use.
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 the early 90's. In 2006 he started a online real estate investing information website. He hopes to help other investors by giving them the information on real estate services that will help them
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