Don’t Let Price Keep You Away From A Good Deal
By Paul Esajian on December 11, 2013
There is a large portion of investors who will base their acquisition strategy on price alone. They believe if the listing is low enough, it must have some severe flaws or be located in a bad neighborhood. While this may be the case with certain properties, not all should be judged based solely on the price. There are many properties in many areas that are great deals if you look past the price. In fact, some of the highest profit margins come from properties that nobody else wants.
There are many reasons a good property could be listed at a severe discount. The first reason is that the property may be listed currently in an undesirable area, but that doesn’t mean it isn’t livable. In some cases, it may be that there are better properties in better areas in a given area. This would make the subject property less desirable, but that doesn’t mean that it will stay that way forever. Neighborhoods can shift on a dime in a matter of months. Once a transaction takes place in a local area, the market has been set. Depending on the parameters of the transaction, an area can improve rather quickly.
Many landlords and investors are put off by investing in so called “war zones.” They hear stories of how difficult rent collection is or how collecting rent can be a hassle. The reality is that this is the same regardless of where you are renting. College students and small families can be as difficult to rent to as any tenant in a low income neighborhood. A lower purchase price typically means a lower rental amount, leaving you with a much higher chance of getting your rent check every month.
One of the reasons an area becomes less desirable is that the houses are old and outdated. Even though the properties may be 60 or more years old, you will find that the foundations are great and the electricals are solid. You will have to put some upgrades in, but with the right ones, you can easily add 40 years of life to your property.
Before you quickly dismiss a property, you should do yourself a favor and at least drive the neighborhood and view the house. You will find that in some cases you were completely mislead or misinformed with how bad the area is. You should never let one fellow investor’s opinion of an area influence what you do. They may have had a bad experience with a tenant in that neighborhood caused by something they did. Get to the bottom of exactly why the property is listed as low as it is and what it would cost to get it updated. You can make a good profit investing in areas that others don’t want to.
Low price does not equal low profits. Do your homework and due diligence on every property and every deal. There is always a reason why a property is listed where it is. If you come across one that is listed low based solely on the neighborhood, take a drive down to the area and check it out for yourself. There may be profit to be made investing where others won’t.