This post is the first of a three part series.
Part One: See Potential in Properties
Finding the Deal
Finding distressed properties is an important part of finding a priced below market value. Many of you may remember the abundant foreclosure and short sale market from a couple of years ago. While there are still some of these properties that exist, the numbers are much lower than they were, and banks have started to do some basic fixes that they were not previously doing, making these properties more marketable and therefore the profit potential much slimmer. Instead of finding a deal in the foreclosure market, look for properties with the 3 Ds. Death, divorce, and disease are three types of situations that may force the hand of a seller to take a reduced price on a property with the hope of a quick sale. This can be a major factor helping you to negotiate and score a great price on a property. Another great strategy would be to find a property in distress may be searching tax records on properties. Finding properties that have tax liens through the county assessors office due to delinquent taxes is potentially a longer term procedure, but could yield high profit margins.
Location, Location, Location
The old real estate adage still rings true. Property located in desirable markets is worth more than less desirable areas. Make sure that the location fits the intended purpose of the property. If purchasing a property for a business, how much foot/car traffic passes by the property on a daily basis? When purchasing a residential investment, find out the neighborhood market values. It is best to purchase the least expensive home in the best neighborhood versus the most expensive home in the neighborhood. Have your real estate agent run a CMA (comparable market analysis) to determine market values for the property. If the property is selling for below market value, you MAY have a good investment.
Is the property worth the risk?
Determining the risk factors of your investment will mean doing some more research on the property. There is most likely a reason the property is priced below market value. If the property will need remodeling, it is best to contact a contractor to have them walk the property with you. They can help you determine what the costs associated with improving the property would be. Make sure to have all permits and license labor costs upfront. Unless you have a cash project, you may need to look at your carrying costs while remodeling as well. Having a timeline and deadlines will help keep your project and budget on track. Many savvy investors like to earn their profits with a little sweat equity. Our next topic in this series will be focusing on the changes you can actively take a part in and when it might be best to hire some help.