Unfortunately, investing in properties is a tough business. What’s more, finding a lucrative deal can be challenging — especially for newcomers.
It begs the question: how exactly can you spot a good real estate deal? Well, the answer varies depending on who you ask.
According to the National Association of Realtors, 50 percent of investors rely on the internet to spot good real estate deals. Meanwhile, another 28 percent of buyers said they found their property through a real estate agent.
However, finding rewarding real estate deals goes beyond surfing the web for houses to buy.
You also have to do detailed research before diving in. Indeed, an in-depth understanding of the income property you’re about to purchase involves ticking specific boxes such as:
- Crime activities
- Amenities (parks, restaurants, gyms, etc.)
- Average rent in the neighborhood
It all sounds so complicated — we know. The good news is this post simplifies the details into bits that you can quickly consume. Bon appétit!
5 Tips to Help You Find Good Real Estate Deals
1. Compare Purchase Price with County Appraisal Value
A quick way to determine if a property is a good deal is to compare its selling price with the county’s appraisal value.
It begins with typing the property’s address into the county appraisal district website. Then, check whether the selling price is above or below the value appraisal.
You’re likely to profit if the property’s selling price is below the county’s value assessment. On the other hand, you could lose money if the price is above the appraisal. Why is that, you wonder?
Well, it’s because the county’s appraisal — or 10 to 20 percent over the assessment — determines fair market value. So, it’s best to check before making an offer.
2. Check for Zoning Issues
Another thing to check before making an offer on a property is the zoning issues and lien.
Zoning refers to the laws that guide how real properties can be used in a specific area. It often involves designating the type of operations that are not allowed on a site. For example, zoning laws can restrict the commercial or industrial use of land in a residential neighborhood.
There’s just one problem.
Zoning laws reduce the ways that an investor can use a building or land. As a result, the number of buyers that might be interested in that property could diminish significantly.
According to the laws of demand and supply, that would also decrease the value of the investment property.
3. Tailor Your Expectations
First-time real estate investors tend to have a lofty expectation of their first purchase, and that’s a problem.
According to a study in the journal of Vision, expectation affects the perception of material properties. In other words, you’re unlikely to see what a property could be because you’re stuck on how it should be.
So, forget the hype and let go of those ideals. Consider buying the “worst” place in an excellent location. Then, you can slowly renovate the building based on your budget.
4. Compare the Selling Price with Potential Rent
There are several ways to estimate the investment returns on an income property.
However, one popular method is to compare the property’s selling price with the rent. And that’s where the one percent rule comes in. According to the one percent rule, an income property should rent for at least one percent of the purchase price to yield a positive cash flow.
For example, it’s a good real estate deal if you can buy a property for $300,000 and receive a $3,000 monthly rent. That implies that the property’s selling price is about 100 times the monthly rent.
Consider analyzing the fair market rental rates in an area before buying the property.
5. Consider the Job Market
Areas with growing employment opportunities tend to attract more tenants.
For example, tech centers such as Silicon Valley are notorious for their high housing cost. The average rent for a 1-bedroom apartment in the tech hub costs as much as $2,175.
So, check with the U.S. Bureau of Labor Statistics to examine how a specific area rates for job availability. You could also watch out for an announcement about a big brand moving to an area.
You can assume that when a company moves, the workers have to follow. As a result, the housing prices in that city could increase steadily.
To Wrap Up: Start Buying and Selling Your Investment Properties
Real estate offers several benefits to investors. Besides steady cash flow and substantial appreciation, investors will also enjoy tax breaks and a diversified portfolio.
However, you have to contemplate specific factors before buying or selling a property. While the due diligence process may be tedious, don’t let it discourage you.
The right frame of mind is essential when looking for a good real estate deal. Don’t worry; they’ll eventually come your way.