Surprises are bound to happen with your real estate investment journey. Unfortunately these can cut into your profits on the house that you’re rehabbing to flip, but the impact can be minimized through some due diligence in the beginning. Now you’re not going to be able to prevent every possible problem from popping up, but looking for potential issues now will save you a lot of time (and money!) in the future.
Important Things to Look for When Choosing a Property
- Plumbing and electrical work - When you are initially looking at a house that you’re thinking about investing in, do a thorough check of the plumbing and electrical work to see what potentially needs to be replaced. While you’re there, turn on the water and see if there are any issues as you go through the property. Building a contingency amount in your budget is a good idea, too--we recommend half of what you think it will cost. Then, if there are no problems, you win. If there are more issues than expected, you might spend more, but on the average you should come out okay if you plan for these potential problems. You should keep a close eye on the plumbing and electrical work in older homes especially.
- Foundation issues - This is especially important to look at because inspectors will often kill deals if there are un-addressed foundation issues--and these problems can become very expensive and are often difficult to spot. If you’re looking at a home that has had an addition recently added on, pay close attention because it’s likely that there are foundation issues if things weren’t done correctly. In the end, you need to become an expert in determining what a minor crack is as opposed to a major foundation issue. This expertise will come with experience.
- Days on the market - Here’s where we talk about what’s most important to your profit: the sale price. Many investors make the mistake of listing their property significantly over market value in hopes of finding that one buyer that falls in love with it and overpays. We have found that pricing it slightly below market is the way to go. Homes that are viewed as a “good deal” will get significantly more traffic and will often create a bidding war. When people get emotionally attached to a home, they are more likely to bid well over list price when they are in a competitive situation with other buyers. Remember, the longer a house sits on the market, the more power gets shifted to the potential buyers. Also, don’t forget about holding costs that quickly add up as months go by.
These are just some of the more prominent areas that need extra attention when you are looking at investing in a piece of real estate. We here at Catalyst Funding will be happy to help with any question you may have about the items we listed above or about real estate investing in general. We’re more than just a lender--let us help you accelerate your future in real estate today! You can give us a call at 832.648.3626.