Credit for potential home buyers is tight, and the foreclosure scandal has caused banks to be even more hesitant to loan money. So how does an investor make money in this market? The answer is, very carefully.
The real estate bubble of the past decade saw the creation of the term “specu-vestor.” So many people who had no business buying and flipping homes hopped on the bandwagon. Now many of their properties have been taken back from the bank and are languishing on the market. The downside is that the homes are now most likely in a state that requires renovation. The upside is that a smart investor can purchase these homes and then turn them around for a profit.
Success depends on where the home is located. Neighborhoods that are stable, have good housing stock, and are near good transportation choices are a good place to start. Homes that are on the edge of areas like these can also create a decent return on investment. Analyze the average selling price housing stock in the selected area for an idea of how much to pay for a home. An average rule of thumb is to pay about a third of standard values, invest about 75% of the purchase price into renovation work, and price the home at or near average pricing. For example: Pay $100k for a home. Put $75k into the renovation. Set the sale price at around $295 in order to allow room for low ball offers.
Buying these homes takes a bit of strategy. It requires cash in hand to take to the bank, or enough cash to convince them that it’s a good idea to finance the remaining balance. Once success has been made in the form of shaking the house loose from the bank, it’s time to prepare for the real work.