Know Your Market
Looking at listings for distressed properties online, with your Realtor, or in the newspaper can be very enticing, but you need to know your market before jumping into what looks like a good deal but really is not so great.
Knowing your market means knowing what comparable have sold for recently, and how long they were on the market. You should also be aware if a property is constantly turning up as a new listing, with a different price, different realtor, different advertising. Knowing your market means:
- Knowing what has sold in the past 3-6 months
- Knowing what didn’t sell, and have an idea why (contract fell apart, failed inspection, seller had no offers or rejected all offers). You may not have exact information about why a sale does not go through, but know if there are patterns.
- Knowing what is for sale, and how long it has been on the market
- Knowing what attracts buyers to your market area, and who is buying. Are families buying homes, young people buying apartments, older people moving in after downsizing? Or are most homes that were for sale currently rented instead?
- Knowing what percentage of homes in your area are foreclosures or qualify as distressed properties, and for what general reasons
- Knowing about the economics of the area. Are employers shutting down, are new jobs coming to the area?
All of these are an important part of your planning. The market doesn’t care how much money you need to make, or a seller needs to make. The market is the market. It’s defined by what a willing and able buyer will pay for that property.
Once you’ve identified a property you are interested in purchasing, inspected the property, and worked out the costs for purchase, renovation, and financing, it’s really important to enlist the services of a Realtor who is experienced in marketing renovated homes for quick sale. The Realtor can advise you about property history and may have advance information on similar properties that are not yet on the market. They may also have a relationship with banks that own REO properties in the neighborhood, and enable you to present offers to the bank.
Best of all, a Realtor who enjoys an ongoing business relationship with you can be an invaluable source of information about trends, pricing, and sales techniques. They tend to be grounded about pricing, not getting carried away with what someone needs the property to sell for. They offer true guidance on market based pricing and they demographic of buyers to focus their marketing efforts on. This way you are not wasting time and effort; and for an investor, time is a currency that needs to be valued along with money.