As a new investor, it is only natural to be swept up in the excitement of finding a “bargain property” and you may overlook some very critical steps that may make your excitement turn into disappointment. Here are a few tips to help you pave your road to success…all the way to the bank.
Take your time. Resist the urge to buy the first property you find. Do you remember the old saying, “If it appears too good to be true, then it most likely is”? You will find that in today’s market there will be numerous bargain properties that appear to be a good deal but after a closer look they are simply not what they seem. It takes time to dig through the rubble to find the diamond in the rough that will make you money.
Determine your buying criteria and gather information. What is the maximum price you will pay? Number of bedrooms and baths? How much rehab are you willing to do? Are you targeting a specific location or geographical area? Financing options? Will the property support several exit strategies? What are similar homes selling for in that area? Will you’re after repair value allows you to sell below the market value to increase your odds of a quick sale? Look at only the properties that fit into your criteria and will work in your investing plan.
Ask a seasoned investor to look over the deal to make sure the numbers work. Usually the formula is that the total cost of purchasing, rehabbing, debt service, etc. must not exceed 70% of the after repair value (ARV). In today’s market, I have been using 60% to help insure a safe investment. Remember, the numbers determine if it is a good property which can make you money, or if is will simply evaporate your money and offer no return. NEVER adjust the numbers to make the deal work. I recommend adding ten to twenty percent to cover unexpected costs. If the numbers do not work then move on to the next property.
Never consider purchasing any property without first having a contractor check the overall condition of the property. He can identify major problems that will cost you money. Provide him with your rehab plan for improvements on the property so he can base his estimate on your plan. The type of repairs, the cost and the time required to complete the project will be the key figure in determining if the property is worth purchasing.
Check out “Sellers and Wholesalers” offering you a great deal guaranteed to make you a boat load of quick cash. When you’re dealing with any property you have to be careful and do your due diligence. If you’re investing in bargain properties, you will need to put on your high powered glasses when considering them as a purchase.
Success starts when you make smart decisions before you buy.