Bargain Properties

Locating & Evaluating Them

Everyone wants a Bargain! It's human nature. And this couldn't be truer than in real estate investing.

So how do you go about locating these kinds of properties. And once you do, how can you be sure if you're really getting a Deal?

There are several ways to Locate Bargain Properties:

1. Distressed Seller

2. Distressed Properties

3. Distressed Market

4. Bird Dogs

Distressed Sellers - As discussed in detail in another section of my website, any property owner who is anxious or desperate can provide excellent bargaining power for you when trying to negotiate a purchase.

Just remember the number one rule of Negotiating - Each party must get something of value in return, or a WIN/WIN. Even when trying to get a discount on a property, a good investor will try to leave the seller with something of value to walk away with. This could be monetary, or it could be peace of mind knowing they've been relieved of a financial burden.

Working with these kinds of homeowners is an art in itself, and the better you get at helping people the more successful you'll be at buying Bargain priced property. After all, who would a seller rather deal with? Someone willing to help them, or someone just out to make themselves a profit. Leaving homeowners with a good impression is half the battle.

Distressed Property - If you find an property in need of an extreme amount of work that the general public is not willing to take on, it can present great savings to an investor on the buy side.

Before buying a property like this, you will need to determine a few things:

1. COR (Cost of Repairs) - how much money will it take to rehab the place? Does it need simple paint, carpet and cleaning? Or is it in need of a massive overhaul, such as a new roof, foundation, kitchen or bathrooms, electrical, furnace, etc. Determine the cost of repairs including parts, tax, labor and carrying costs during the rehab phase.

2. ARV (After Repair Value) - what will the home sell for after the repairs have been made? A good realtor should be able to advise you on this, or you can do research on your own.

3. Bargain Time or Bail Time? - Armed with this information, you should be able to intelligently evaulate whether the property is a bargain or a blunder. Take the price of the home, subtract purchase costs, the COR and selling costs from your ARV, and you will be left with the maximum price you can pay for a property in order to make a profit. For example:

$200,000 ARV

- 4,000 Purchase Costs (2.75%)

- 25,000 COR

- 14,000 Selling Costs (7%)

$157,000 Break Even Purchase Price

If I wanted to make a $10,000 profit on this acquisition, then I would want to buy the home for $147,000. $10,000 profit divided by $43,000 invested is a 23% ROI - not bad for some people. For others, they may want to do better and if they couldn't get the house for below $147K, would move on to another house and do this analysis all over again.

Learning to make these kinds of calculations will be imperative if this is a buying strategy you want to employ.

Distressed Market - Any time you find an area where the market is distressed for one reason or another, you can always find discounted property. Distressed markets can occur for a number of reasons:

• Job market downturn

• Rising Crime Rates

• More supply than demand (Buyer’s Market)

• High foreclosure rate

Some of these trends will pass over time and if you happen to buy when the market is down, you will profit when it recovers. If however, the conditions don't reverse and things only continue to worsen, then you could find yourself strapped with a property you can't rent or sell. Be careful when using this strategy - careful research and timing are critical.

Bird Dogs - No, not the hunting kind. There are actually people who market themselves to investors as deal finders. They do all the leg work so the investor doesn't have to. Once they've located what they consider to be a "deal", they will present it to the investor for a fee.

Lot's of new investors get their start up capital for their first investment, as well as great training on how to find Bargain properties, by performing Bird Dog services. Also, by meeting investors they may find a mentor or two, as well as a future partner.

In some states, Bird Dogging is illegal, so if you plan to use one or be one, check your state laws. Check local investment clubs if you'd like to find one or become one.

Armed with some of the strategies above, you should be analyzing property from a whole new prospective now. At the very least, learn to keep your eyes open and recognize when an Opportunity is staring you in the face!