This is the first in a three part series on real estate investment
Part One:
See Potential in Properties
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 D’s. 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 assessor’s 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.
