I’ve often thought of real estate investing as looking for buried treasure, except that in this case it’s treasure that everyone can see, if they only had the eyes for it. So how do you develop a house-buying eagle eye? The first thing you will need to do is to identify your sweet spot, that is, the part of town where you want to do most of your business.
I always suggest that in starting out, you should go on every appointment, regardless of location, for the simple reason of gaining experience. You want and need to build as much experience qualifying property, meeting sellers, and inspecting potential buys as is possible. However, that comes with a warning…after a few months you really do need to identify your sweet spot and stick to it. Time is money, and by chasing leads in unfamiliar parts of town you’ll be decreasing your chances for successful outcome, and losing out on opportunities closer to your office.
So in defining your sweet spot, first you need to know what you’re looking for:
- A house that needs repairs, that looks tired and possibly distressed.
- A house in a part of town that is desirable.
- A house that has a motivated seller. This is HUGE. You need someone who is willing to sell the house for less and be done with it.
The first thing you want to do is get a map of your region that you can put up in your office. Take a good look at it. Remember that by limiting where you do business, you will be developing an expertise in that area that will save you both time and money. Make sure to identify those areas nearby you think present the greatest potential. Then do some research.
When I look for a sweet spot, this is what I look for:
- Geographically Desirable – properties near to your work and home. A rehab project can take many months, so the less time spent in the car going to and from the property, the better.
- Good Schools – Communities with good schools have the jobs, income and pride in their neighborhoods.
- Affordability – Find a price range that includes the most potential buyers. Avoid the inner cities. Even though the home prices may be drastically lower, there are greater challenges with rehabbing and selling in those neighborhoods.
- Steady Sales – Work with a real estate agent to learn the number of houses on the market, number of sales and the average number of days on the market for that area. Also check the price range of any sales. Look for areas that are trending up or down.
- Pride of Ownership – Look for areas where people like to live and take pride in their own properties. This includes good schools and home maintenance. The more amenities nearby, the better (public transit, grocery stores, restaurants, library, parks, shopping).
To be successful in rehabbing houses, you need to find property that you can buy on your schedule, as well as rehab and sell. Finding houses free and clear of liens is important. This means that it’s probably a good idea to stay away from foreclosures until you and your team gain enough experience to deal with the challenges of building a rehab business that depends on the bank making a decision.
REOs are a good fit. Yes, they are bank owned… but they are free of any liens and the bank simply wants to sell them for 2/3 of the sheriff’s appraised value during a set auction date. Often, banks will sell property for less than what they would have accepted as a short sale. This makes REOs a great source for possible buys. Right now finding bank-owned properties for sale is the best strategy to get properties that you know you can sell once rehabbed.
To see actual rehab projects that I recently completed, visit http://www.strategicrealestatecoach.tv