Try not to swallow the story you are told hook line and sinker because you believe that the person offering you the “Deal of The Century” is being perfectly honest, supplying you with correct information and guaranteeing that you will make enough money on the deal to retire.
Buyers Beware: Your Real Estate Deal Could Be Fools Gold
Not all that glitters is gold. It may turn into “Fools Gold” and your investment will “go up in smoke.” What will you find “hidden” inside those walls when you start to demo the junk out of it?
After encountering numerous new investors who had been sold “junkers” that were unrepairable, unsellable, unrentable and unfinanceable, we knew that people needed some hands-on training to be prepared to select, assess, and create rehab estimates on properties–then how to market the property so it could be sold quickly.
Next time they are offered a great bargain they will know enough not to get into trouble on their first investment.
Do Bargain Properties Really Exist?
So first of all, what is a bargain property? Bargain Properties are the “cream of the crap” …or the best of the least desirable properties on the MLS , REO listings or FSBO’S. They may be properties offered to you by a wholesaler.
By least desirable I mean that some properties with excellent potential are not selling, and the price keeps dropping. Be aware that you need to be patient and sift through many properties before you find one that will be a money maker for you.
Here are a few tips:
- Investors get into trouble when they omit a strategic part of the process–Due Diligence.
Always use the approach recommended by President Ronald Regan –”trust but verify” on every property you are considering, regardless of who is offering the property to you.
- If you’re purchasing an “as is” wholesale property, check out the wholesaler.
Ask other investors about the type of properties they market. Have investors been successful with the properties purchased from the wholesaler in the past? Wholesalers are a great resource for finding properties, but remember, their job is to get rid of the property. What I mean by that is they will make the deal sound as good as possible with their numbers. Run your own numbers to make sure it is a deal worth pursuing.
- If it is a “bargain” then there is a reason why.
Usually they are sold “as is” meaning that yes, there are problems, and it is up to you to determine what they are and if the repairs will be too costly. Don’t overlook any part of the house, especially the foundation. Is the floor lower on one side of the room? That could potentially be a minor fix or a costly repair that could sink a project.
- Use your common sense.
Listen to the seller and see if everything they tell you make sense. Is the area being renovated or will your house be the only one that does not have plywood over the windows? Does the house remind you of an illustration out of a Dr. Seuss book? Will the house really be worth what you are being told? And how about the cost of the repairs, can it really be ready to sell after only $5,000 in repairs?
“Cheap Property” Vs. “Bargain Property”
Don’t fall into the trap of just buying because a property is cheap. A good “bargain property” will make you money, but a “cheap” property will cost you money.