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Article source: http://www.faxts.com/. Used with authors permission.
Youre driving along the road when you spot it. There in the middle of a shaggy lawn sits a disheveled property. It may need a good coat of paint, or a shutter straightened out, but its easy to see that with a little work it could be a little gem of a property. Best of all, sprouting in the middle of the unkempt grass is a For Sale by Owner sign. It looks like the perfect fixer-upper, but how do you know for sure?
First, consider your reason for buying. If youre looking for a property to flip - to buy low, fix up and sell for a profit - there are a number of things youll want to take into consideration. If your intent is to buy it as rental property, theres a different set of consideration, and if youre looking for a home of your own, theres yet a third. Lets assume, for the sake of this article, that your intent is to flip the property for profit.
Test 1: The Neighborhood Test
Before you invest another hour, do yourself a favor and take stock of the surroundings. The old saying in the real estate business that the three factors in selling a home are location, location and location. What is the location like? No matter how wonderful the property is, youll have a difficult time selling it for top price in a bad neighborhood. That doesnt mean that its a bad property - depending on how low a price you can bargain, you still may be able to make a decent profit from it.
Another consideration in the Neighborhood Test is a bit moresubjective, and youll have a feel for it if youre local and keep an ear to the ground. Is the neighborhood in transition? A neighborhood that is on the cusp of a renewal effort like gentrification can be a great place to invest, as long as the upward momentum continues. An area that is on the outskirts of new development will often benefit from that as well. If, on the other hand, the neighborhood shows signs of slipping into a decline, you might want to pass the property by. If you can see that the neighborhood is slipping, so will prospective buyers.
Are there amenities nearby? Depending on the neighborhood and your prospective market, those amenities might include a neighborhood school with a good reputation, a corner store within walking distance, or a park right down the street. In one Massachusetts city, for example, the value of properties in a formerly depressed neighborhood skyrocketed when a local university announced a commitment to provide full tuition to thechildren of neighborhood residents, and provided additional incentives to home buyers within several blocks of their campus. Investors who bought just before the announcement realized excellent turnaround on their investment.
Test 2: The Pricing Test
Is the home listed with a Realtor, or is it a FSBO? How realistic is the asking price? Is it in your price range? Can you work out a low or no-money-down financing option? How open to negotiation is the seller? Will you be able to realize a profit after making needed repairs?
Test 3: The Condition Test
This is one of the most important tests. The property you want to buy doesnt require any extensive, expensive repairs. It should be structurally sound, without any major plumbing or electrical problems. If youre just starting out, youll want a property with repairs you can manage yourself - repainting, refinishing floors, a little landscaping. If the property requires more extensive repairs, it will cut into your profit, or eliminate it altogether.
When you view the property, really kick the tires. Look for indicators of hidden problems. Here are a few things to look for:
- Moisture stains on walls and ceilings could indicate plumbing problems
- Little piles of sawdust near corners or woodwork could mean termites.
- Separations between floor and wall, especially outer walls which could indicate structural problems.
- Lift tiles in suspended ceilings to examine the ceilings above for loose plaster, moisture stains and other indications of problems
Test 4: The Title Test
The final test is the title test. Be certain that the title to the property is clear, with no liens or attachments that could sour the sale. If there are, and you still want the property, work out a conditional sale, where your purchase is contingent upon the liens being satisfied.
If the property passes all of the above tests with flying colors,congratulate yourself. Youve got yourself an investment property that could turn a pretty profit for you. Andrew is the web owner of Real Estate Investment Tips, a website that provides informational guide on real estate investment, foreclosure home and more. You can visit his website at:http://www.buy-and-sell-house-fast.com/
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