A lot of people are very depressed about the home market right now but for people interested in flipping or just investing in real estate this is still a decent time to make money. Actually any time is always a good time to make money in real estate or any other business you just have to understand the basics of investment.
Any business person will tell you the main way to make money is to guarantee yourself a profit.
Real Estate investing is no different then buying wholesale toys in August and waiting until November to sell them.
For home flippers we want to get in and out as fast as possible but… what really is as fast as possible?
With the market slumping you have to understand up front that buying a property for investment may mean some creative thinking. You may want to restrict yourself to buying homes that you can live in. That means you buy a house and live in it until you sell it. At that point the flip is just a basic turnover. For other people it may mean buying a home that you can rent for a period of time. If you can rent your investment property for the cost of your mortgage and taxes or even slightly above then you will continue to have income instead of loss.
However if neither of these routes fit your goals then you have to find properties that can be purchased well below the market value and with minimal investment make them livable. There are a number of ways to get hold of properties that have gone up for foreclosure. The Government is one way or lender sales are another. Tax sales are also a potential buyers resource.
Which ever resource choose you will need to fully understand your total profit margin.
Lets look at a home that was listed for foreclosure in March, 2008.
When you look for a potential property that is in the middle of foreclosure the listing will show an auction date that is 30 to 90 days out from when the home is first listed. This means that a home owner whether it be an individual, the government or a lender has time to back out of the sale prior to the auction completing.
So, lets examine this property.
If you follow this google map link you will see that it is in a very rural area about 90 miles south of Atlanta and about 30 miles from the closest medium sized town.
This is a 3 bedroom Ranch home on a slab with about 1200 square foot of living space and about 2.5 acres of land.
Now for a lot of people they will see no potential in this home but lets take a closer look.
The real estate taxes are only $438 a year. Water is on a Well and sewage on septic so with the cost of a pump there are no water bills and sewage will require a once every couple year clean-out depending on the size of the septic tank.
The lot size is not great but it is 2.5 acres which is enough for expansion of the home.
Its distance to Atlanta 90 miles or an hour and a half can be good or bad depending on the buyers choice. You are also about an hour and a half from the gulf of mexico.
So, who would buy this home from you?
Well the most common potential buyers are the people that live in the area. Every year there is a new batch of kids graduating from high school and they need a place to live. The second buyer might be someone that wants to retire to this area since taxes are so low and the size of the home and property are manageable.
Although the location is not Park Avenue you do have a group of people that will continually need housing in the area.
But what about profits?
This is the deciding factor. The home is listed at an extremely low price of about $13,500 and for 2.5 acres of land anywhere in this area of the east and gulf coast you just can’t get property let alone a home on the property for this price very often.
To price the home right you can’t expect to ask $250k for it after you put a coat of paint on it and throw a couple 50 pound bags of turf grass fertilizer on the front yard.
You will have to do your comps and see what other houses sell for in this area.
If you can buy the home for $25k including a basic clean-up you might be able to sell it for $125k if you put a couple appliances, tile and a new carpet in it. If you want to turn the house quickly you will have to ask less and that might mean only asking $50k to $70k.
But even if you only make %40 profit on the house you are still making better money then any savings account or stock fund.
Now this example is rather extreme. It is a little far from everything and it might need some structural repairs OR it might just need the plywood taken off the windows you don’t know until you inspect it.
These houses do exist and they do come on the market in every location in the country from time to time but because they cost so much less then the homes around them they are the best potential place for seeing results in any economy.
If you take this idea and apply it to any other investment you will quickly see that this is the way to make sure you get profit from your investment.
No matter what the market is
Look for homes that are well below market value.
Houses that can be repaired to a livable although not lavish quality can be lived in or rented until sold.
And most important
This is an investment so never spend more then you have to lose and know what you have to spend in order to improve your investment to its best potential.
In other words in this small rural home you would not put in $10,000 worth of counter tops however with 2.5 acres of land you might get $200 worth of garden fence and till up an area for a vegetable garden. You might also spend $1,500 on a few loads of gravel to make a decent parking area. And you might install some 3 rail fence in the backyard for a dog run or maybe even a horse. And you definitely would make sure you checked all the local newspapers for anyone giving away a pool or shed or other item that could add to the home and cost you nothing.
You have to know your area and know where to put the money to attract a buyer.
At the very worst you end up with a place you can sit on for some time and maybe use as a vacation home while you wait for a buyer.
You can still make money but you need to find your deals.