Distressed real estate is a the diamond in the rough that all RE investors are seeking. HOWEVER, with out doing your research you may lose far more then you will gain.
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.
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.
Here is the list I have used:
KNOW WHY ON PRICE
Price is the first thing an investors sees.
So the goal is to buy for cheaper then the current market value and sell within market value or above. so how come the seller is offering such a GREAT price. Is it to settle debt??? Is it due to divorce? Death in the family?
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 Structural problems such as a cracked foundation or outdated plumbing and electrical wiring.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.
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.
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 ATTENTON TO TERMS AND CONDITIONS
Price and location are important this is true. but dont forget about 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
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.
DISTRESSED REAL ESTATE
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.
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 tennet or two? Zoning is a gift or a curse depending on your plans with the property...make sure you know before you buy it.
Garages converted with out permits, Granny flats that get added..etc..etc. These are common examples.
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.
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.
Here is the list I have used:
KNOW WHY ON PRICE
Price is the first thing an investors sees.
So the goal is to buy for cheaper then the current market value and sell within market value or above. so how come the seller is offering such a GREAT price. Is it to settle debt??? Is it due to divorce? Death in the family?
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.
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.
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 ATTENTON TO TERMS AND CONDITIONS
Price and location are important this is true. but dont forget about 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
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.
DISTRESSED REAL ESTATE
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.
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 tennet or two? Zoning is a gift or a curse depending on your plans with the property...make sure you know before you buy it.
Garages converted with out permits, Granny flats that get added..etc..etc. These are common examples.
About the Author:
Doc has been a investor since early 1990'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
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