Every deal you get involved in will have its own unique challenges. Some deals will be easier than others, but very few will be smooth sailing from start to finish. In order to get the most out of each transaction, you need to ask yourself as many questions as possible, every step of the way. From the moment you get started with a property, you should visualize all of the potential problems you may encounter. If you can answer who, what, why, when and how along the way, you will avoid making decisions that will get you in trouble.
The very first question you should ask yourself the first time you see a property is why is the house on the market at the price it is listed for. If the deal appears too good to be true, that just may be the case. You need to find out as much about the seller as you can. If it is a bank owned property, find out how long it has been on the market for and if there have been any price reductions. When you are looking at the property, see if there has been any work done that could be a red flag for bigger problems. If you come up with why they are asking their list price, it may lead you to either making an offer or moving onto the next property.
After why, you should ask yourself what you are going to do with it. If you are looking at a property in an area with high rental demand, it may make sense to hold onto it for a few years and rent it out. If the property is a good rehab candidate, you should look at comparable sales and see what homes in your local market are going for. Whatever your business plan is, you need to establish a clear objective for the property before you buy. Trying to figure it out after you buy is a surefire way to get stuck with a property you can’t do anything with. Before you ever make an offer, you need to have your exit strategy firmly in place.
If the property needs any work, you need to determine how much work is needed. Taking a walk through the property and coming up with a quick estimate is not the same as calculating a firm budget. It is easy to miss potential issues with the roof, foundation or basement if are trying to work too quickly. This is the most important step in any rehab. If your estimate numbers are off, everything else will be in jeopardy. It is also a good idea to determine who is going to do the work and if they can do it on your schedule. Your master plan may have you getting in and out in 30 days, but if your contractor is booked you will be forced to go with your backup plan.
Having the ability and desire to close is not the same as knowing when it can happen. Depending on who the seller is, when you close can vary greatly. If you are working with a traditional seller, you may be able to entice a quick sale with a cash offer or some other perk to expedite the process. If you are working on a short sale or a bank owned property without an accepted offer the deal could take months to close. This will make the deal far less attractive and can greatly change your strategy and your offer price. If you have to close in the winter you will need to get the house winterized and weather can play havoc with any work that needs to be done. It also can become an issue if you have other properties you are interested in or need capital from a sale to make this deal happen. A good deal may not be as good as it looks if you can’t close for six months.
Finally, before you buy, you need to know who your target market would be if you decide to sell. Are you looking to wholesale out to fellow investors or rehab and flip to end buyers? The answer to this question will affect what kind of work you do and what your offer price will be. You also may view the property as a long term hold and consider renting the house out. All of these options require you to know the market and comparable rent and sales numbers. If you don’t know who your target market is and you decide to buy, you may not get as great a return as you think. Every market is different, even within the same towns. Sales can change in just a couple of miles and this could mean thousands of dollars either way. Any good investor knows their market before they think about buying in it.
The more questions you ask, the better chance you have of making good decisions. There will always be issues and changes to any plan, but if you start with some basic answers it will point you in the right direction. It is always far better to walk away from a property you aren’t 100% sure about than to hope you have a good property. Getting involved in a bad deal will take you months to recover from and affect the rest of your business. By asking the right questions and finding the answer, you will have much less doubt on every purchase you make.