Bargain Properties ? How To Play This Game.
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.
Use a step by step mind set. "Go by the numbers" when reviewing all the areas of the investment that you want to focus on here are a few things to think about and add to your list.
Keep in mind...this isnt listed in any particular order. Its just things to keep in mind the target real estate should meet at least one of the criteria, but not be too heavy in any other areas.
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)
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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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 costs 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.
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.
PAY ATTENTION TO 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.
LOCATION. LOCATION. 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.
DISTRESSED REAL ESTATE
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)
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.
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.
Think of it this way, what could make you more money...a single small house on the land you just invested in...Or a duplex on the same land? One tenet or two? Zoning is a gift or a curse depending on your plans with the property...makes sure you know before you buy it.
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. - 23212
Use a step by step mind set. "Go by the numbers" when reviewing all the areas of the investment that you want to focus on here are a few things to think about and add to your list.
Keep in mind...this isnt listed in any particular order. Its just things to keep in mind the target real estate should meet at least one of the criteria, but not be too heavy in any other areas.
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)
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 costs 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.
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.
PAY ATTENTION TO 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.
LOCATION. LOCATION. 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.
DISTRESSED REAL ESTATE
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)
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.
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.
Think of it this way, what could make you more money...a single small house on the land you just invested in...Or a duplex on the same land? One tenet or two? Zoning is a gift or a curse depending on your plans with the property...makes sure you know before you buy it.
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. - 23212
About the Author:
Doc has been a investor and project manager since early 90's. In 2006 he started a real estate investing information website. His goal is to help or investors by giving m information on real estate services that will help m
posted by X - Men @ 2:19 AM
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