Thinking of Investing? Now is a great time to buy.
Considering an investment property? Prices are down currently so now is a great time to find a modivated seller and get a bargain.
When searching for a bargain investment, you should start by understanding the difference between chronic and acute problems with a property. What you really want in an investment property or flip is a property that has a lower price than other recent area sales because of some acute problem such as the kitchen is old, the paint job or walls are bad, the interior needs repair – things that are ameniable to repair. You want to buy properties that are underpriced compared to their immediate value due to problems that can be fixed with some time, money and construction skills. Even if the house is listed as "As Is", you can and MUST still bring in an experienced home inspector, with a background in home construction, to examine the house.
By contrast, some houses are cheap because they have chronic, that is, non-fixable problems. The area may have alot of mortgage defaulters, which will translate to being a bad environment - and you won’t sell for any higher than you bought for. Look for areas that will attact good quality buyers or tenants. Start by walking around the area - is it a neighbourhood you might like to live in?
Find a Realtor who has their own investmentment properties, then work with them to run the numbers on prospective properties. A good background investigation of a property should include a historical analysis of how that property has performed over time. Use Google Earth and drive-arounds of the area to look for problems. Is there a hydro field, train track or garbage dump in the area? Is the property too close to stores or other busy spots? Is there abutting land that might be developed in the future into something that will depreciate the area? Your background investigation should include a few hours at City Hall to discuss the zoning, tax rates (including any planned increases or improvement fees) and other potential concerns with the staff there - they are more than happy to help you if you ask. For about $80 you can get a Letter of Compliance that will disclose any problem areas the city knows about the property. This may include zoning violations or work orders. Problems don't necessarily mean that you should avoid buying - but you must discuss the implications with your lawyer and Realtor in thorough detail. If you can get a substantial discount on the purchase due to the problems, and you have the cash reserves to address the problems, that land might be a great investment.
Your Realtor should be able to provide you with recommendations on contractors, mortgage brokers, appraisers and home inspectors. Aways get recommendations from contractors you are considering employing, and get your arrangements with them in writing. Contractors tend to work a little harder when you are around, so you can coordinate your time to be on-site while they are working. You can paint or rent a garbage bin (about $300 for 7 days) to clean up the property while they are redoing the kitchen or bathroom.
Posted by Peter Sigurdson
on August 21, 2010