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 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.
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.
Doc's List:
HOW MUCH AND WHY
Investors ALWAYS see the 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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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
Holding costs are one of the biggest profit killers to investors. Taxes, mortgage, comissions to agents (both selling and buying) gas, electric...all theses things add up...and FAST.
A poor understanding of the current market value is another major deal killer. Remember market value is a educated guess at best. No one really knows untill the apprasial is complete.
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.
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.
RESEARCH 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.
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 scenerio. If you can make a great profit on a ugly house in a less then great area. It may out shine the "perfect condo" by the beach.
FIXER UPPERS AND FORECLOSURES
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.
Distressed property is a gold mine. IF you know waht your 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 alot of the basic questions...and you have an idea how much it will cost to fix/correct, do your self a favor. Add 5% as a buffer.
Understand the ZONE
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.
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.
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. - 15224
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.
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.
Doc's List:
HOW MUCH AND WHY
Investors ALWAYS see the 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
Holding costs are one of the biggest profit killers to investors. Taxes, mortgage, comissions to agents (both selling and buying) gas, electric...all theses things add up...and FAST.
A poor understanding of the current market value is another major deal killer. Remember market value is a educated guess at best. No one really knows untill the apprasial is complete.
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.
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.
RESEARCH 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.
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 scenerio. If you can make a great profit on a ugly house in a less then great area. It may out shine the "perfect condo" by the beach.
FIXER UPPERS AND FORECLOSURES
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.
Distressed property is a gold mine. IF you know waht your 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 alot of the basic questions...and you have an idea how much it will cost to fix/correct, do your self a favor. Add 5% as a buffer.
Understand the ZONE
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.
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.
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. - 15224
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. He hopes to help or investors by offering m information on real estate services that will help m
