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 certain criteria, an investor can lose their investment as well as any profit that was to be gained
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.
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.
Here is the list I have used:
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)
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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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
In my opinion the most common over looked profit drainer is underestimating the liquidation costs of holding and selling the property. Things to keep in mind and budget into your holding costs are: commission payments to real estate agents, closing costs, mortgage payments, taxes, plus repair and maintenance costs. Also electric and water.
If your not up on the market your shopping in...your going to loose 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.
TERMS AND CONDITIONS CAN HELP YOU
What areas can you leverage besides price and location. Financing?
If you have the means you can pay full price but jocky for a FAR lower intrest 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
Good 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? Dont rule out these questions. Make sure to look in to the last houses sold in the area as well as any selling trends you can find.
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 then 4 star area...that profit might out shine a nice little bungalow on the beach.
FIXER UPPERS 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.
Understand the ZONE
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.
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 early 1990'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
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