So how do you pick the right cash flow real estate?

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.

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.