Distressed real estate is the diamond in the rough that all RE investors are seeking. HOWEVER, without 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 an investment that excels in one area…it cant be problem heavy in another.
I give you…THE LIST:
HOW MUCH AND WHY
Price is the first thing and investor sees.
We are all looking for below market value. Buy for a little, sell for a lot. But why are they selling so low? Is it to solve one of the “3 D’s”? (Debt, Death, Divorce)
What problems does the property have if any? Old cracked and faulty plumbing? Bad electric? If its an older craftsman style home those problems are very common. Is the foundation in good order? Don’t forget holding costs.
My personal opinion is that the holding costs are the number one profit killer. YOU HAVE TO BUDGET THEM IN. Commissions to agents, mortgage, closing costs taxes, all repairs…and dont forget the gas and electric.
If youre not up on the market youre shopping in…Youre going to lose money.
Check out other property near the one youre looking at investing in. what prices are they pulling in? Are they the same size? Lot size close to the one youre looking at? Same style of structure?
PAY ATTENTION TO TERMS AND CONDITIONS
What areas can you leverage besides price and location? Financing?
In fact, used wisely, an investor can pay full price and use this positioning to negotiate lower interest rates or a smaller down payment. Over time, the rental cash flow will be in the black because of the terms agreed upon by the buyer and seller, combined with gradual rent increases and price appreciation.
STUDY THE LOCAL MARKET
Good investors get in the habit of understanding the lay of the land. What is the local community like? Where are the closest fire/police/EMS services? How good are the local schools? Don’t rule out these questions. Make sure to look in to the last houses sold in the area as well as any selling trends you can find.
As the man said…it is all about location.
If your shooting for a long term tenet or residence then location is the second most critical thing to look at…however if you have a chance to turn a good profit for a ugly house in a less than 4 star area…that profit might out shine a nice little bungalow on the beach.
DISTRESSED REAL ESTATE
In the case of a fix and flip and sometimes a foreclosure. It is the job of the investor to factor in the repair costs. A keen eye can save you lots of money in a very short time. (Not to mention a good understanding of home repair work)
Distressed property is a gold mine. IF you know what youre looking at. How old is the roof on the property? How much will it cost to repair/replace? How is the plumbing? Is the foundation/slab sound? Once you have asked a lot of the basic questions…and you have an idea how much it will cost to fix/correct, do yourself a favor. Add 5% as a buffer.
GET IN A ZONE WITH ZONING
Zoning provides an opportunity to put the property to a higher or better use and is an area many investors ignore. Higher and better use means that the owner is getting the most out of the land. For example, if a lot is zoned for three units but contains a single lot, then it is not getting its highest and best use. Or if a lot is zoned commercial, yet there’s a three unit residential building sitting on it, it is not getting its best and highest use, like a business or a store.
These are often bargains because the price is based on current use. So the single unit residential is priced low while the double unit duplex could be sold higher or rented out. Harder to find as developers stay more aware of zoning allowances these days.
Garages converted without permits, Granny flats that get added…etc…etc. These are common examples.
Doc Schmyz has invested all over the US. He built a free website shares Real estate investing information for all over the US. Find real estate information by state
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