Finance Articles

Questions Investors Should Ask When Buying and Selling Investment Property

If you're a real estate investor, here are several questions to consider when looking at investment properties. Providing sound answers to these questions will greatly increase your profits:

Why do homeowners sell for bargain prices?

There are many factors that can prevent owners from being able to maintain their homes. Such factors as job transfer or loss, divorce, illness, addiction to gambling, drugs, or alcohol, or any of a wide variety of other problems may overwhelm a homeowner. When that happens, their home becomes a low priority and necessary repairs are no longer made. The house may even go into foreclosure.

The death of a homeowner may leave relatives with a house no one wants, which then becomes a burden. These homes may just be "tired" and only in need of cosmetic upgrades in order to compete with other homes on the market.

I recently purchased a "Triple D" house: one that had been involved in a Divorce, was going through Default, and was a Doghouse. But it needed only cosmetic work, so my daughter and I bought it and we're doing it all ourselves, without the help of the men in our lives, and we expect to make nearly $50,000 for one month's work. That's not as much as our husbands generally make on their "doghouses," but we're not going to work nearly as hard.

What should you look for?

The hardest house for a homeowner to sell is a "doghouse," which is also commonly known as a "dump" or "fixer-upper." These run-down houses scare off most buyers, who lack the up-front funds for the down payment, closing costs, new furniture, and things like new carpeting, roof repair, and other repairs that may be required. With that in mind, looking for key words such as "handyman special," "as is," "fixer," and other tell-tale words in real estate ads or listings can make you money.

Tell your realtor to use those types of key words when doing a Multiple Listing Service search in your target area. Once you find a fixer that you can transform from a doghouse to a dollhouse, find out the seller's problem and then offer a solution. Those problems are often money-related, so being ready to close quickly is generally important and can lead to a bargain price from a seller in a financial bind.

How do you close quickly?

You can close more quickly by having your loan in place before you even begin negotiations with the seller. Motivated sellers will respond favorably if you've been pre-approved for your loan, so getting yourself both "pre-qualified" and "pre-approved" by an experienced lender will let sellers know that you can close quickly.

How "bad" is good?

When you first start out in the real estate "fixer" business, look for UGLY houses that are in need of only cosmetic work. Entry level "blow 'n go" fixers are houses that just need cleaning up, paint, and carpeting.

Know your limitations, and use caution when looking at houses that are in need of structural repairs. Such homes can be very profitable (we've made $75,000 for one month's hard work, for instance), but they're not good candidates for most beginning investors. Since my husband knows how to do construction, we're able to take on houses that other investors might not. He's replaced structural beams, sub-flooring, walls, plumbing, and electrical systems, but he learned those skills over the course of many years.

Over time, you may learn how to do much of the structural work yourself, but when you're first starting out, make sure to get estimates from reliable contractors for any structural repairs that might be necessary, and then decide if there will be enough profit left over to make the project worthwhile.

What's the easiest house to sell?

Selling a "dollhouse" in a desirable family neighborhood is easiest. For instance, we once sold a house we called "Orange Tree Cottage" just three hours after it hit MLS! Buyers first look for a particular neighborhood, and then look for a house within that area with the right number of bedrooms, bathrooms, and other amenities. They'll ultimately buy the house that not only meets their basic requirements, but also supports their emotional needs.

What are buyers' emotional needs?

We find that the use of Design Psychology and Marketing Psychology makes a huge difference when we sell our investment properties, selling them more quickly and at higher prices. But both concepts go far beyond simple "curb appeal."

We first entice buyers onto the porch, through the use of potted plants and flowers near the front door, which we've painted a happy color. Once buyers are inside the house, we use colors that target our prospective buyer's income level and match the selling season. Generally, buyers of higher-priced homes prefer complex colors, and using cool colors during hot weather and warm colors in cold seasons sets the stage for making buyers feel comfortable in our houses.

As a real estate investor, asking yourself these questions, choosing your properties carefully, being prepared to act quickly, and using Design Psychology and Marketing Psychology can all work together to greatly improve your bottom line.

(c) Copyright 2004, Jeanette J. Fisher. All rights reserved.

Professor Jeanette Fisher, author of Doghouse to Dollhouse for Dollars, Joy to the Home, and other books teaches Real Estate Investing and Design Psychology. For more articles, tips, reports, newsletters, and sales flyer template, see http://www.doghousetodollhousefordollars.com/pages/5/index.htm

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