For the purposes of this writing, a “Good Deal” is defined as: “A property that fits an investor’s required rate of return with potential for appreciation which is also conveyed in a condition fitting for the price.”   
 

Required Return. Investing in real estate should be purpose driven. Purchasing an investment property should be a specifically targeted decision that fits your investment objectives. Rental rates of return can range for 5%-20% depending on the nature of the property. Every property is different and each should be analyzed like an investment. One of the biggest mistakes that investors make on a home is not calculating the rate of return or cash flows.  

Potential for Appreciation. The second consideration of a “Good Deal” is identification of potential for appreciation. Perhaps the trickiest of the factors, appreciation is typically inversely proportional to cash flow on an investment. However, the biggest factor for future value is an attractive location for customers with purchasing power. Major red flags to watch for in location are the presence of a flood zone, watershed, train tracks, or other industrial nuisances. Believe it or not, people will build homes anywhere. Houses have been constructed in the median of highways. So don’t assume anything. Take a look on Google Earth and drive around the neighborhood. Drive around the neighborhoods and take a look at the key driving forces of an area. Know where you are shopping before you purchase anything.
 

Condition Matters. The third major guideline for looking at a “Good Deal” is to make honest and fair assessments about the condition of the home. Typically, discounts are made more heavily for houses in need more substantial repairs. A loose doorknob or burned out light bulb do not typically warrant a substantial discount from a bank or a home owner under duress. Going into a house in need of repair might require the assistance of an experienced general contractor or a handyman depending on the amount of work needed. Repairs of the home will typically be paid for out of your pocket and impact the return of an investment. Do your homework before you start the work on your home and you might be able to stay in your budget.
 

Price and Inventory. The last consideration of a home is the price. The price of a home does not necessarily qualify it as a good deal. Frequently, the first question asked about a house is, “What’s the price?” Don’t be lured into the temptation of buying a cheap home because it’s cheap. Paying a reasonable price for a home is essential to a successful investment. You can do the analysis on your own or a good real estate agent can analyze the prices of homes in a neighborhood to tell you what is going on with prices and activity in a neighborhood. One thing to consider when looking at what are called “Comps” (comparable properties) are the number of houses sold vs. the number of houses available on the market. Depending on the neighborhood, you might not want to buy a home that is priced well for today’s market if there is a multi-year supply of houses that could drive down prices after you buy.  There are no great rules of thumb for the amount of supply you should be aware of. The primary thing you will want to be alert about is the reality that an abundance of properties on the market and slow movement of inventory will typically drive prices down.

There is a lot of subjectivity to real estate. Two investors can look at a house and come to dramatically different conclusions about the investment depending on their objectives. The goal is to have focused thoughts about the potential investment you are considering. The most important part of analyzing an opportunity to sell a home is to not get caught up in the price, take an honest assessment of the location and condition, and then to look forward into the future trends of the area. If you are able to do these four things well, you will make a good investment into a home that may pay dividends when the economy recovers. For help with your real estate investment needs, contact This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 704-965-2535.