Tuesday, May 5, 2015

Buying Distressed Property

What to look for in a home:
Let's say you are getting ready to make an offer on a home that you will fix up and re-sell as an investment. You can learn to think like a home inspector looking at specific critical areas in a home using a property inspection summary sheet.  This is what I use when I go out looking at homes to purchase.  This way I am always consistent and don't overlook anything obvious.
Potential re-sale matters a great deal at the time of purchase.  I look at the neighborhood; Are the neighbors junky, is the neighborhood a war zone, is it on a busy street, what are the values of similar properties in the area?  As an investor I want to be able to get the property, do the necessary renovations, then put it back on the market for re-sale.

Homes in disrepair are easy to identify from the curb - usually they need painting, roofs need repair/replacing, junk in the yard, gutters not connected, etc. These homes are great candidates for adding value by making repairs.

Well-maintained homes are just as easy to spot, they look cared for and you will be able to tell that the owners take pride in where they live. Some investors like to find homes that need minimal work, and they add value in other ways, such as adding rooms or subdividing the lot.

Positives and Negatives
Ways to catalog the pros and cons of the home from an investor's perspective:
·         develop and use a checklist of needed repairs for all the rooms
·         Identify the pros and cons in each room (be specific)
·         Note any functional/physical obsolesence
·         Use an individual checklist for each property.

To develop an accurate after-repair value (ARV) for the house, look for remodel comparisons in the neighborhood. Be sure your ARV allows room for profit after you pay for the house and all repairs. Key features for basing home comparison are (compare apples to apples):
·         Location
·         Views
·         Design/Style
·         Quality of Construction
·         Actual Age
·         Condition
·         Lot square footage
·         Gross living area square footage
·         Number of Bedrooms and Baths
·         Heating/Cooling System
·         Energy Efficient Items
·         Basement (finished or unfinished)
·         Fireplace

For a free property checklist, like the one I use, please email me privately at HomeLandInvestment@gmail.com

Happy Investing!

With thanks to Bernita McKinnion, Home Land Seattle, for her assistance on this blog post.

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