All it takes is one seemingly good deal gone bad to blindside your budget and trip up your profit margin. In an ideal world, seasoned investors can take a hit or two—they’ve got enough equity built into their portfolios to get up and keep going. But that’s not always so with new investors. I’ve seen several get knocked down and stay down. It’s a tough racket when you lack the skills or resources to know for sure if the property you’re considering is worth your time and money, only to find out it’s not after you’ve got too much skin in the game. So if you want to start flipping houses, it’s my hope that I can save you some grief by telling you how to decide whether a real estate investment opportunity is a good deal.
Evaluating Real Estate Investment Opportunities
When evaluating real estate investment opportunities, many novice investors will allot a high level of certainty based on a limited amount of criteria and move ahead with the purchase. For single-family residences, this can include specifics about the property and how they compare to area comps, as well as estimated renovation costs. Some new investors also look at whether the market is predicted to shift or not by the time the house is rehabbed and ready for sale again. To make a competitive offer, these points are the least you should consider.
Before buying and renovating a property, it’s critical you perform due diligence in order to confirm, or contradict, what you think you know about it. If your offer gets accepted, that doesn’t necessarily mean you should close. There may be issues with the home that even the seller is unaware of—issues that can turn a deal into a disaster. You need the big picture to see what you’re really getting into. Here’s how to focus your efforts on getting there.
Perform a title search. Ask a title company to verify that the title is free and clear of any liens or undisclosed mortgages and can be transferred to you without issue at the close of escrow. Adding title insurance provides an extra layer of security in guaranteeing a property is actually yours once you close. And, wherever you can, choose which title company to use. If the seller insists on using a title company you’re not familiar with, you may want to move on.
Get a home inspection. To decrease your chances of buying a money pit, schedule a home inspection by a licensed professional. If appropriate, also make arrangements for other industry-specific pros—like electricians—to inspect individual systems. This step is crucial to uncovering any problems that might swallow your budget for the rehab or your potential return on investment. Don’t skip, or skimp on, this phase. Whatever’s discovered could make or break the deal—and rightly so.
Compare estimates for the renovation. Until you’ve been buying, renovating, and selling houses for so long that you’ve got a contractor on speed dial, it’s important to get multiple renovation bids from licensed and insured professionals. As much as possible, you want to avoid underestimating, or overpaying for, repairs—both of which can come as an unwelcome surprise if you’re not careful. Getting a handle on these costs from the get-go is imperative to resolving whether to hang on to a property or let it go.
Perform a survey. Few novice investors take the time to conduct a survey, but not doing so could negatively impact your ability to sell the house later. A survey confirms property lines and exposes if there is an encroachment by a neighbor. It also determines if there is an easement—an authorization to use the land by someone other than the owner. If either of these are found in the affirmative, whether you proceed with buying is up to you. But it’s better to have the option beforehand, than wish for it later.
These simple procedures, done as a part of your due diligence, are designed to help you identify a good deal and prevent buying a bad one. The number of days you have to evaluate a property can vary with each contract, but be sure to include due diligence time–and to use it if your offer gets accepted.
The Value of Investing With the Right Tools
If you want to make the most of the critical time before closing a deal, ensure you have access to the best real estate investment analysis and valuation tools on the market. As an independently owned and operated HomeVestors® franchisee, I certainly do. The proprietary valuation system, ValueChek™ analyzes over 80 different kinds of repairs, adjusts numbers according to local markets, and estimates a property’s after-repair value. It’s the most comprehensive and easy-to-use method I’ve seen for evaluating properties quickly and is something that every investor should have in their toolkit. You may buy or back out of a deal, depending on the results. But the good news is, you’ll have the option and still be standing tall.
Improve your chances of making good investment choices. Contact HomeVestors® to get access to the right tools today.
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