Does Great Value = Investment Property?
More and more this time of year you see an advertisement for a property with 'Great Investment' prominently displayed. But is it? If it's such a great investment, why hasn't any other cash heavy investors jumped on it? What should you be looking for? How many major components will need replaced? Why is the seller selling? All of these questions are good ones to have the answer to BEFORE purchasing an investment property!
I have extensive experience and first-hand knowledge of how veteran property flippers and investors view properties. While their percentages, cap rates and calculations may vary, the bottom line remains the same - Am I making money? If the answer to that question ultimately comes down to no, they are obviously out. But how do they get to that answer? How do they know if they will make money or not. What are you missing?
Understand that time is money. The more time a flip or investment takes to get on the market or rent, the more money and time you will need to spend to recoup that investment. The longer something takes, the more costly it becomes, but this is not the only factor investors take in to account. Their goals, whether to flip and move or rent and hold are contributing factors and definitely something you should consider and discuss with your agent BEFORE purchasing. If the property has sold three time previously, and each time was on the market for 150 days or more, the work that you need to put in to the home to make it more competitive might be quite a bit more than a property that has sold twice in the last ten years within 30 days of listing and appears to only need a new roof. Your goals matter!
A list of basic items that my investors, regardless of goals, want me to know include:
Is the property rented? If so, how long is the lease?
What major mechanical repairs will need to be made in the next 5-10 years?
When was the roof last replaced?
What does competitive rent fetch in the area?
What are the property taxes?
What is the average days on market of comparable properties during the last 12 months ?
Within the property, what needs fixed/updated/replaced? (flooring, kitchen, baths, walls, etc.)
While this list is certainly not all-inclusive, understand that I have the answers (to the best of my ability) to all of these bullets BEFORE I present the property to one of my clients as a viable rental property. As with any home purchase, there are sometimes surprises when the home inspection comes back but that is part of the game.
So.....is your agent equipped to help you determine whether that great value is an awesome investment? If your agent is unable to answer the basic questions above and be able to communicate what that means for you, your money and your objectives, you may want to consider giving me a call. Remember, when viewing investment properties from a distance, a great value does not always equal a great investment property. Time is money!