Discover The Key To Real Estate Investing Success
By Paul Esajian on June 30, 2017
One man’s trash is another man’s treasure. This is not just a tired cliché but a mantra you should run your real estate investing business by. It is no secret that there is more competition in the real estate business than ever before. With the increased competition, there is no such thing as a slam dunk, risk free investment. To get the type of returns you desire you need to find undervalued properties where the masses aren’t looking. Some of these properties are undesirable on the surface but upon closer inspection can be exactly what you are looking for. Even in areas of high investor concentration you can find deals if you are willing to stray off the beaten path and step out of your comfort zone. Here are four ways you can find undervalued properties in any market.
- Don’t Judge A Book By Its Cover. A savvy investor knows to never judge a book by its cover. There are times when you will come across a truly fowl looking and smelling property. Most people will walk in with their hands over their mouths and quickly walk out. It is important to remember that as an investor you are not looking to buy your dream house. You are looking to make an investment in a property that will generate income. Bad odors, garbage across the living room floor and terrible exterior cosmetics are relatively simple, and inexpensive, fixes. In fact, these are the properties that can give you the greatest return. Because of the appearance the demand is diminished and the value is reduced. The seller knows that it will take some money to restore the property to its original glory. As long as the bottom line numbers make sense and the problems aren’t too deep a beat up looking property can make a tremendous investment.
- Demographic Dips. Most real estate markets work in cycles. Areas with stable employment and low taxes can be great places to invest but the cost of entry is typically too high. These make better places to live than to invest. For investing purposes, you want to look at areas that are currently in a downturn but have solid fundamentals poised for recovery. Take for example an area that may have lost a large employer. On the surface, homeowners may need to relocate and with excess supply home values will take a hit. While this may be true in the short term the market may quickly bounce back if other areas are strong. Markets with low taxes, good schools and otherwise strong employment will get through any temporary lull. Reading about a major employer closing could mean major opportunity if you are willing to ride the cycle out and let it recover. With these types of deals you may need to tie your money up and rent for a year until the market turns over. When it does turn you will be glad you moved on the property when you did.
- Bad Properties In Good Areas. Making money with undervalued properties involves some degree of risk. There is typically a reason why the property has sat on the market for so long or the seller can’t find a buyer. It is up to you to evaluate the cost of repairs in relation to the expected return. When doing this it is essential that you take the current market into consideration. Buying a distressed property in a bad market does not guarantee that demand will be there. If you are going to take a risk you are always better off buying in a better area. Every now and then you will come across a diamond in the rough property in the middle of a nice neighborhood. These properties typically have something major wrong with them that has kept other investors away. In most cases almost anything can be fixed, repaired or updated with enough capital. Instead of looking at the capital outlay consider the return. Pricing out the market six months or more down the road is always tricky but estimate the value after you are done with the property. In good areas, you will spend more but you can also see a higher percentage gain.
- Network With Everyone. Truly good deals in real estate aren’t advertised or promoted on the MLS. They typically come from your existing contacts. An attorney you worked with on a short sale months ago knows someone who may be interested in selling and passes along your information. The contact doesn’t even have to have a connection to the real estate business. You may have struck a real estate conversation with someone at your daughter’s dance recital who has a question on a foreclosure they are currently dealing with. They call you and the next thing you know they ask you if you would be interested in making an offer. More home run deals are done through personal contacts than anything else. It is important that you are constantly networking even when you aren’t at networking events. The people you meet should know that you are in real estate and can call you if they have any questions.
Real estate investing is like poker in that you should look for one big deal a year and fill in the gaps with smaller deals. By constantly looking for undervalued properties all it takes is one deal to make it worth your time.