A popular way to invest in residential real estate, for beginners and experts alike, is by purchasing a property to renovate and resell. You can find fix and flip loan options to fit your needs but choosing the right property can be the trickiest part of the process. There are three main questions you should ask about a potential property before buying it which can help you determine if it is a good investment or not: what does the property offer, what do comparable properties in the area tell you and how does the property stack up?
What Does This Property Offer a Buyer?
When answering this question for yourself, it is a good idea to visit the property in person, however, you can find some of this information online from real estate sites if you cannot get there or want to do some initial research first. Look at the features of the property such as what kind of neighborhood it is in and where the nearest schools or stores are. Other features can include the state of the property such as curb appeal, number of rooms or the age of the roof.
What Do Comps Reveal?
Lenders will often look at comps when approving a fix and flip loan application, to see what types of properties in the area are selling and what prices they are going for. This information can give you a good idea of whether the list price plus renovation costs are likely to fetch you a profit, but it can also tell you what kinds of buyers are interested in the area and what features are most appealing to them. Knowing your target buyer can help you better understand what your property can or does offer.
How Does the Property Compare?
When looking at comps, it is important to choose examples that are as similar to your target real estate as possible. This means in the same neighborhood, or close by, with similar property profiles in size and condition. You can then compare your target property to those comps to make a list of needed improvements and walk through the real estate to make sure you have included as much as possible.
Before you secure a fix and flip loan, you need to do some research on your target property and decide if it is a sound real estate investment or if you should keep looking. Walk through the property in person whenever possible to get an idea of what is needed to bring it in line with comparable real estate sales in the area and whether those improvements will eat up your profits.