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In's and out's of Bargin Property

Aug 19, 2008
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:

WHY THE ASKING PRICE

Price is the first thing an investors sees.

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)

What problems does the property have if any? Old cracked and faulty plumbing? bad electric? If its a older craftsman style home those problems are very common. is the foundation in good order? Dont forget 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.

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.

Price other property inthe area. Come as close to the size/style/lot size you are looking at buying.

TAKE ADVANTAGE OF TERMS AND CONDITIONS

What areas can you leverage besides price and location. Financing?

In fact, used wisely, an investor can pay full price and use this positioning to negotiate lower interest rates or a smaller down payment. Over time, the rental cash flow will be in the black because of the terms agreed upon by the buyer and seller, combined with gradual rent increases and price appreciation.

RESEARCH 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.

LOCATION IS NO TO BE OVER LOOKED

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.

DISTRESSED REAL ESTATE

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.

Fixer properties are a treasure trove to a savy investor. If you have a good eye for details and can spot maintance problems you can make a nice return on your investment. Things like a bad roof, poor plumbing or a bad foundation can be very costly to repair. Once you have a idea of what your looking at for repair cost, do your self a favor and add a little buffer say 5%...just to be safe.

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.

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.
About the Author
Doc has been a investor and project manager since the early 90's. In 2006 he started a real estate investing information website. His goal is to help other investors by offering them the information on real estate services that will help them
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