Real estate is the best asset class for many reasons. One reason is that the market is still
inefficient. “Inefficient” because
bargains can still be had by the “regular Joe.”
How do I mean? Perhaps a widow
just passed away. She doesn’t have any
family in the area. That means that no
one in the family wants her home, and they don’t really care that much about
it. It can be purchased at a price below
the market. The out-of-state family
doesn’t really know the market, and since they are splitting the money 4 ways,
another $10,000 in the price doesn’t mean that much to any one of them. These kindof deals are available every day.
The stock market is not like that, if there is a company
that is undervalued, the profit is taken quickly by the big boys.
So how do you know what is a great deal for a property? Are you looking to fix and flip in the
“pretty” market or fix and flip in the cash flow market? The pretty market requires more imagination
on the buyers part. Can inexpensive
updates make this property appealing from the curb for a family? The now ugly, but could be pretty are a good
start.
It has been said that you make your money in real estate at
the buy. So here are other indicators to
consider: Location, sellers motivation,
price, and condition.
Location
Where is the property?
Who is your intended tenant or owner?
Do they care about being on a busy street or do they want access to the
bus line that runs on that busy street?
Is the current use the “highest and best use” of the area? If the property should be torn down as part
of a commercial area makeover, then consider how soon that might occur. What does the surrounding neighborhood look
like? Does it show general pride of
ownership? Is it decaying or starting to
restore?
Seller Motivation
You might benefit from someone else’s emergency. They might have a tax problem or another cash
demand. Perhaps they are behind on
payments and are scheduled for a foreclosure sale. Bid low to probe. You will know if they
ignore the low ball offer or give you a take it or leave it counter offer. If they don’t care, then you won’t make your
money on this one.
Price
Check like properties in the area. If you are using an agent, get comparables. If not, use Zillow.com. eppraisal.com or trulia.com. It has some feel for what the area is and what the property can sell for. If you can get to 10% below what that value is with your price + rehab costs, then proceed.
Check like properties in the area. If you are using an agent, get comparables. If not, use Zillow.com. eppraisal.com or trulia.com. It has some feel for what the area is and what the property can sell for. If you can get to 10% below what that value is with your price + rehab costs, then proceed.
Condition
Carpet and paint make such a huge difference in a
property. Become friends with a general
contractor or an excellent handy man and get their view on cost to make
marketable at the price you want. Stay
away from structural problems like foundation or bowed walls. Watch for water damage and consider
mold. Don’t waste money changing out
kitchen cabinets. Focus on carpet,
paint, shrubs and landscaping.
These considerations will prepare you for your best shot at
profits in real estate. If you like the
idea of owning real estate but don’t want to go through this kind of a learning
curve, we have properties that have been through this process and are leased up
and ready for cash flow.
You can see for yourself real estate might fit into your
accepted investment risk parameters. We
have a short risk assessment questionnaire that you can access at Main Street Planners.