Tag: investor

When you buy an house, how will you KNOW whether you got a good deal or not?   A commom misconception is to see how much the seller discounted the asking price and then decide if that’s a “good” discount or not.   I’m not sure how you magically guess the appropriate discount to qualify for a “good” deal, but that’s another story. So, here’s a QUIZ….. Which house is a better deal?

1. House 1: Asking price $100,000, purchase price $80,000.
2. House 2: Asking price $100,000, purchase price $105,000.
3. Neither house
4. Both houses
5. All of the above.

If you answered 5, you’re clearly confused and probably shouldn’t walk while chewing gum.   If you answered, house 1, what if the last 3 homes like house 1 sold for $50,000?   Would you want to change your answer?   If you answered house 2, what if the last 3 homes like house 2 sold for $150,000?   Would that change your mind?   If your answer is 4 that both houses are equally a good deals, technically, you really have no idea if either one is a good deal or not because you don’t know what other homes like it have sold for and that’s why the correct answer is 3, neither.

Homes are generally valued by the comparison approach which means we compare the house to similar homes that have recently sold….  called comparable sales or comps, for short.   You absolutely, posititvely MUST look at the comps to know whether or not you got a good deal.   You absolutely, positively must NOT use the seller’s discount from asking price as an indicator of whether you got a good deal.   Of course, we’re ignoring that you and your family have to like the house, it has to fit your needs and make you happy….  if the house makes you and your family happy, you can disregard the comps althougher because it’s a GREAT deal.

Thanks for reading
Joe

If you’re at the clothes store, and you buy a shirt off the clearance rack for 90% off, is it a good deal?   What if it doesn’t fit you or it’s just plain ugly !?   I’ve been getting a lot of calls on a really low priced bank property from would be Investors looking for an investment property.    So, is cheaper really better?   Not if cheaper doesn’t “fit”your investment goals!

I recommend thinking about what kind of property you want, then compare prospective properties to your “criteria” to see if they fit.   This will help you objectively decide which properties are good for you and which ones aren’t and will set you apart from the investors wouldn’t know a good deal if it hit them in the face.

For example, would you prefer…..
1. Single home vs Townhome vs Condo vs multifamily?
This will affect the kinds of tenants you attract.
2. Monthly cash flow from rents or long term appreciation of property value?
They’re pretty much mutually exclusive, pick which one you want.
3. Location, location location???
of course this is a critical part of your investment plan.
4. Property Manager or No?
A location close to will be easier to manage yourself if you’re not going to hire a property manager.
5. Cash purchase or financing?
Cash allows you buy homes that are in poor condition so opens more opportunities. Financing makes your offer less competitive and there are many challenges with investor financing…. Be thorough in your pre-qualifying for an investor mortgage.
6. Price range?
How much cash do you actually have or how much mortgage can you actually get?
7. What’s the minimum rate of return that you require?
Cash on Cash is the first and easiest calculation…. Cash in divided by Cash out. $x rent after expenses divided by a $x purchase would be x% return.

Well, that’s it for now…. 2009 is a great time to buy investment property in South Jersey.   Let me know when you’re ready to take the first step and together we’ll develop a basic plan to get you started.

Thanks for reading
Joe Montenigro
REMAX Home Team