When investors look at properties with an eye to profitable turn-arounds, not personal taste. To invest successfully, you need to consider how each aspect of the property might impact your bottom line. Your ideal property is usually a structurally sound property in a good location with cheaply fixable cosmetic flaws.
To decide whether a property is a worthwhile investment, go through the following checklist:
Macro-Location: Is the general area going up or down in price? Is the area convenient to current or planned public transportation or driving routes? What is the quality of local schools? Is there shopping nearby?
Micro-Location: Look around the block. Are the houses well maintained or are several empty or for sale? Do people have nice clean cars or rusted out junkers? Are there any downsides to the specific lot, such as backing on to a freeway?
Comparables: Check prices and time-on-market of comparable houses in the neighborhood. If time-on-market is over a month or two and the property is not at least 20% less expensive than comparables which have actually sold, it's probably not a good investment.
Crime: Check police reports. High crime neighborhoods are bad investments.
Structural soundness: Is the foundation sound? Is there any evidence of water damage? Are there termites? Is there city sewage or a well-maintained septic tank? Are the basic electrical and plumbing systems installed correctly? These are all red flag issues -- they may be so expensive to fix that you can't make a profit on the house.
Cosmetics: Paint, flooring, fixtures, minor repairs, and landscaping are easy to change, especially if you have good do-it-yourself skills.
Decision Point: Add the price of the house to the costs of upgrades and if the total is 15-20% below the price of comparables, you have a potential investment.
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