Where To Begin...
Hello everyone,
This is my first post... and I must confess, I'm quite confused about all the strategies in real estate investing I have read.
1. Everyone talks about finding a property that is worth X amount of dollars and they can get it cheaper and make a profit? How do you know its worth? Do you hire an appraiser?
2. When you find a property that needs work, and you want to flip the property, how do you assess what needs to be done? I'm inexperienced so how would I know this house needs X amount of dollars to be repaired? What if I buy a house for $50,000 and know it's worth $70,000 (see question #1 above) How do you know how much it will cost to get it fixed? Do you hire someone to come and give you estimates? How much work is too much work?
3. What are the main ways you search for homes? Do you use the internet? Do you search classifieds? Where are good resources for finding homes? I currently use www.realtor.com but it seems rather limited. I'm thinkng there is something better you guys use?
All these articles I read are about getting out there and doing it, motivation, financing, etc... but most none of them talk about exactly what to look for in a property (physcially). Obviously staying away from a house with a roof falling in is good advice... but what about other less obvious things to avoid? Do you hire someone to do termite inspections, etc?
Is there a general guideline to follow when looking at the physical condition of homes? (Regardless of Flipping, Renting, Owning, etc)
How do you determine other houses in the area worth?
Basically, how much is too much repairs?
Any and all help is greatly appreciated.
Ok! There are a lot of questions in your post, but they mainly revolve around what constitues a deal. Let me see how many of them I can answer.
1) The easiest way to find out how much a property is worth is to run a CMA, or comparative market analysis. It takes data pulled from the MLS and uses it to determine how much a house would sell for and how long it would take if it were on the market today. Generally, an appraiser will also evaluate a house (for the bank) if you need a loan. They will use a similar process to determine value, but will charge you $200-500 for it. A CMA can be purchased for cheap or even free if you have a good relationship with a realtor.
2)You find someone who knows what they are talking about. Home repairs should be estimated by a general contractor until you have a feel for what you are looking at. I always get a home inspection as well, especially if my GC hasn't reviewed the dwelling. How much work you are willing to put into a place depends. If there is enough money in the deal, you will find someone who would be tickled pink to take care of it for you, regardless of how much work is involved.
3)The MLS is a good source for properties, but there are thousands of people who review it every day. The best deals are through friends you know, homes you drive by, responses to advertisements you put out, etc. If you find the key to attracting attention in your area, you will be rich in no time.
4)The reason they don't talk about what to look for physically, is mainly because it doesn't matter. Real estate is a numbers game. As long as they numbers are right, the deal is right.
5)I usually stay way from homes with foundation problems. We have a lot of issues in Texas and they tend to be quite costly to fix. I would also stay away from homes near power lines, that contain lead paint or asbestos. Power lines make the home harder to sell. Lead paint and asbestos are just pains to deal with.
-Chris
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Thank you for your advice, I'm researching the info you provided. You have just added much more perspective to REI for me!
In reply to:
2)You find someone who knows what they are talking about. Home repairs should be estimated by a general contractor until you have a feel for what you are looking at. I always get a home inspection as well, especially if my GC hasn't reviewed the dwelling. How much work you are willing to put into a place depends. If there is enough money in the deal, you will find someone who would be tickled pink to take care of it for you, regardless of how much work is involved.
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How do you get a GC to take the time to look at a property that needs work? How do you coordinate this with the home buyer? Do you go with the GC? Any perspective on this is greatly appreciated.
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How do you get a GC to take the time to look at a property that needs work? How do you coordinate this with the home buyer? Do you go with the GC? Any perspective on this is greatly appreciated.
Well, I got lucky and my best friend is a GC, so that hook up was natural. Had I not known him, I would have asked for recommendations from a local REI group.
I bring my GC with me when I initially inspect the inside of the home, which makes it easy for everyone. If he tells me that the house has serious problems, it saves me a lot of wasted time.
-Chris
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What is a local REI group and how can I find more information about one? As well as where can I find one for Nashville, TN?
Thank you for your wonderful help.
Someone from Nashville would probably have a better answer, but I spent a few minutes on google and found http://www.reintn.net/reinhome.asp According to the bio it is a nonprofit association open to anyone, beginner or pro, interested in real estate. Sounds like a good place to start!
-Chris
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Live long and be profitable![ Edited by c-brainard on Date 05/10/2004 ]
I'll add this:
Use the experts, but don't take their word as gospel, particularly before you have some history behind you.
In my experience, the appraisal your lender sources will generally come in at exactly your offer price. Go figure. It's far more important to know what people will buy similar properties for than what the appraiser says it is worth. The appraisal still often will turn up a lot of useful data and, once you have read a couple, will give you a much better sense for how properties are valued. You might see if you can borrow copies of appraisals from friends or family to get used to looking at them and see how they relate to the actual value of their properties (this helped me).
Home inspectors are also not to be implicitly trusted, particularly when loans are involved. Unless you tell them exactly what your goals for them are, they will tend to write the report in such a way as to help you get that loan. Too many work orders can stand in the way, so they may give you a more candid view in person and down play the issues in the written report. Make sure you give the inspector clear direction and make sure that you go to the inspection (this is a great learning experience and ensures you don't miss anything and have an opportunity to look at the problems and ask questions).
Getting started, evaluating problems with the property and figuring out repair costs is the hardest part. I continue to find that challenging. I've learned to eyeball a roof or a bathroom or a floor and figure out the cost, because I've had to do those jobs several times now. Other jobs are still completely mystifying, because I've never had to deal with them. For example, I recently bailed out of an opportunity to buy a brick duplex at an attractive price because I had limited time, the facade was badly cracked in ways I found odd, and I don't know a damn thing about brick - I had no idea what the cost of that job would end up being and didn't want to find out the hard way.
Remember that you can make any number of inspection contingencies, so if the inspector calls out any work that you are unsure about, line up additional evaluations by contrators, get their estimates, and make up your mind.
The main danger here is that you pay for inpections on too many properties that you don't end up buying. One educational experience is to find a property that is a real piece of junk and get an inspection on it. Since it will demonstrate most of the common failure points, you'll have a sense of what to look for during your search and you can avoid doing inspections on properties that have obvious problems. Of course, this is not free. Reading a good remodeling/home repair book doesn't hurt either.
Everything you need to know can be supplied by one of these experts; just don't follow their advice blindly. Ask how they arrived at their conclusions and make sure they make sense to you. If they do, you've got yourself a property.
Bill
Thank you all for your information, I'm understanding more and more...
I'm curious though, how do I find home inspectors? Are they in the yellow pages?
Probably not, since most are independant contractors. I would ask a realtor. They usually have a list of several inspectors they have used in the past.
-Chris
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