Buying Foreclosures For Investment? Better Do Your Homework!

There are thousands of properties on the market now at amazingly low prices. It's enough to make even the most poised investor squirm with heightened interest. However, don't be so quick to gobble up all those "great buys". Just because a property is obviously a "great buy" doesn't mean it is a good investment property. Look, your goal was to buy a property, rent it out and make some additional income until you can sell the house hopefully at a nice profit. So, why are you just looking at the cheapest properties or "great buys"?

We are a multi-service real estate firm providing residential, commercial, business brokerage AND property management services. Our goal is to help our clients reach their goals, but making sure they reach them without the traditional pit-falls we've seen so many investors fall into. Like anything else, you must have a plan-of-action before you start.

Football teams don't play without their entire team and you shouldn't make large purchasing decisions without your entire team either.

Not only do you need a real estate professional familiar with the area, but they MUST have property management experience as well or know a property manager that can be involved in helping you make your purchasing decision. Why is the property manager important in the buying process? It's simple. The property manager should have an intimate knowledge of the area as it pertains to the rental markets. They should know how to conduct a rental market analysis. Traditionally, the rental market changes at a more rapid pace than the housing sales market. This is due to the constant change in rental inventory. Knowing who (developers, individual owners, condo leasing offices, etc.) your most immediate and current competition is, is important BEFORE you purchase an investment property. Knowing if your competition is going to remain competition for long periods of time is also important. Would you purchase a property next to a community that had an on-site leasing office (apartment communities, condo communities, etc.) knowing they would be your biggest competition the entire time you owned your property? I wouldn't. In most cases, those communities can out spend you, undercut your break-even point and make it nearly impossible to get a renter if they offer move-in specials such as no security deposits, 2-3 free months of rent, etc.

Things to do prior to buying investment property (assuming you plan on renting the investment property):

1. Make sure you are using a Realtor that has knowledge of the area and has property management experience (or can introduce a property manager into the mix to help you with your buying decision)

2. Make sure your Realtor does a market analysis and demographics analysis on the property. He/She should include bank-owned properties to ensure you are getting the very best price for the property. You want to make sure the property is in an area that will not only yield a healthy appreciation over time, but also yield the highest probability of procuring a qualified, ready, willing and able tenant in a reasonable time period.

3. They (or the property manager) should conduct an analysis that includes current competition (so you know what the current rental rates are) in the area. They should also preview the property (prior to buying it) to make sure it is a desirable property for the area that will help yield a qualified tenant the quickest.

4. The property manager and Realtor should help you with a cost analysis and give you a general idea of what you can expect as income from the property vs. the cost of your mortgage and expenses. Speaking of expenses, the property manager should also be able to tell you (based on the age of the property and appliances, etc.) what you can expect in repair expenses annually. This will help you determine if your investment will yield a reasonable ROI or if it is a money pit. Remember to factor any HOA or Condo dues into the equation. This often gets overlooked and can pose a serious expense against your bottom line.

So, as you can see, having a team of knowledgeable players on your side can help you avoid certain landlord real estate investment death. Remember, just because a property is a "great buy" doesn't mean it is a great rental property.

If you are interested in finding a good Realtor that has excellent property management experience in your area, please CLICK HERE. We have a network of real estate and property management professionals all over the country that we work with and would be happy to refer you to them.

Happy investing!

Sean Spencer, Owner
Spencer Realty Professionals
www.SpencerRealtyPros.com