5 Things To Think About Before You Make An Offer
There is a lot to consider before making an offer. In the excitement of finding a good property and working on a new deal it is easy to get overzealous. You want the deal so badly that you may lose track of what is really important. The goal of any investor is not to accumulate properties but to make a profit. By pursuing deals with minimal upside you run the risk of missing out on better opportunities that come your way. Once you sign your name on a contract you are committed to the property for better or worse. All it takes is one bad deal to bring your business to a screeching halt. Before you make an offer here are five things you need to think about.
- What Is The Exit Strategy? The two most common real estate investment purchases are rehabs and rental properties. Each of them carries their own distinctive exit strategy. Before you make any offer you need to have a solid idea of what you plan on doing with the property. Saying that you are going to fix it up and sell it is not enough. If you plan on rehabbing you need to have firm estimates on all the work you want to do. Additionally you need to have your team lined up and ready to go. You should know the comparable sales and current listings backwards and forwards and make contingencies in the event your property doesn’t sell as quickly as you anticipate. The more scenarios you play out the better you will be to adapt to whatever you are dealt with. The same is the case with a rental property. You need to have your property management and even potential tenants in place. The bottom line with any investment purchase is that you need to think about the end before you get too far.
- Is Your Plan Realistic? As you consider making an offer you need to think about what you plan on doing with the property. Not only do you need to formulate a plan you should run it by an investor you trust. There is nothing wrong with having a real estate vision. However you need to know that your vision is in line with reality. Transforming a small ranch into a massive colonel probably isn’t the best idea in every market. All work you do will not give you the return you expect. There are certain situations where some work may actually do more harm than good. Always make sure that you do not need everything to break just right for your plan to be a success. What you will find is that in most cases the worst case scenario is also the most realistic.
- Does Your Strategy Work Best For The Market? Not every property makes a good rental property. There are certain areas where rentals are more in demand than others. If your plan on renting you had better do some research on the rental market. You may be able to get by for a year or two but eventually a bad market will catch up with you. The same is the case with a rehab property. Improvements and upgrades typically will always add value but in the wrong market maybe not as much as you think. You need to know that the demographics of the market you are looking at are strong. If there are excessive foreclosures in the area or new housing permits have declined buyers will look elsewhere. With reduced demand come lower home prices. In these types of markets there is only so much work you can do to add value. The individual market plays a huge role in your investing success. Before you make an offer you need to be sure you know everything about it.
- Who Is Your Target? There is a target market for every property you acquire. If you are focused on higher end properties you need to do high end work to find high end buyers. If your property is a good fit for first time homebuyers you need to focus your work and marketing accordingly. Well before you take ownership you should have a good idea of who you are looking to sell or rent to. This has an impact on not only on the work you do but the price you offer. A few subtle tweaks with your property will help attract your target market which in turn will help the property sell or rent much quicker. You can’t take ownership and simply hope you can find someone who is interested.
- Due Diligence. Buying a property is very much like taking a test. The more prepared you are the better you will do. There is too much at stake with a real estate purchase not to know everything about it. You need to know all of the obvious features and statistics but you also need to dig a little deeper. You should drive by the house at different times of the day to gauge what type of atmosphere and traffic there is. You need to go down to town hall and physically look at the field card and tax information. You need to listen to your contractor or inspector with any potential problems. There is risk on every deal but you need to know the risk is in line with the return. Not knowing an issue in the foundation or the roof will completely change the dynamics of a deal. Unexpected things happen on every deal. You need to know that you did everything you could have to prevent the unexpected.
When you make an offer you should be all in and ready to go. There should be no doubt or hesitation that you are making the right decision. If there is you should strongly consider finding another property.