Depending on the market where you want to buy investment property, there could be great deals lying around wherever you look, or great deals could be gone within days of hitting the market. In either case, it’s essential to know how to find great investment property deals, so you’re ready when opportunities present themselves.
What Makes A Great Deal
Before we start discussing how to find great deals on investment properties, we need to understand what defines a great deal.
As an example, let’s say your goal is to purchase a single family home, fix it up, and rent it. Let’s also say that you want to refinance the property, once the repairs are complete, in order to recoup the money you spent purchasing the property and fixing it up.
Additionally, you want to maintain a 20% equity position in the property. If I’ve lost you, don’t worry. This will also make sense in a minute.
Let’s get more detailed about this single family home. Let’s say you want to buy a two bedroom house that’s around 1200 sq feet that will have an ARV (After Repair Value) of around $50,000. I’m used to Missouri home values, so this value may not work for your area, but it’ll work for our example.
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You also want to refinance the property once it’s renovated to get our cash back that you used to purchase and renovate the property & maintain an equity position of 20%. Equity = property value – property debt.
In this case 20% = $10,000 (50,000 x .2). So, we would have $40,000 to purchase and refinance the property. For the sake of this example, let’s assume we’ll need $20,000 for renovations which leaves us with $20,000 to purchase the property.
Start Your Search For The Right Property
Now, there are two ways to go about looking for properties: you can search online (of course), or you can hire a Realtor to search for you. Personally, I would do both. Hiring a Realtor won’t cost you a dime since the seller in a real estate transaction will nearly always pay your Realtor’s commission, so why not get some free help?
Searching On Your Own
Go to Realtor.com, and type in the city/state/zip you want to buy in. You can use other major real estate sites, but Realtor.com tends to have the most accurate listing data.
On the following screen, you’ll see listings for the area you entered. Now, you’ll notice at the top of the screen there are some ways to further refine your search…”ANY PRICE”, “ANY BEDS”, etc.
Select the “ANY PRICE” option, click on the “NO MAX” field, and select the $30K option. We only want to spend a maximum of $20,000 on the purchase, but we start with higher priced properties with the hope of being able to negotiate down.
Similarly, for “Any Beds” select “2+”, and for “Any Baths”, select “1+”. Under “Any Property Type”, select “Single Family Home.” On the following screen, you see some properties that seem to match what you’re looking for.
Realtor Search (MLS)
While Realtor.com will give you a good start, Realtors have access to a lot more information in MLS. What’s MLS? MLS stands for Multiple Listing Service. It’s a tool only Realtors have access to. It’s where they post listings and do market research.
Realtor.com pulls listing data from MLS, however, Realtors can access a lot more information about properties in MLS such as expired listings, foreclosure/short sale listings, search by county, properties nearby certain schools, etc.
Additionally, a Realtor can pull what’s called a Seller’s Disclosure Statement for a listing. This is filled out by the seller and discloses (or should disclose) any known major issues with the property.
Once you and your Realtor have found a handful of houses that seem like a good fit, it’s time to go check them out.
When you’re out looking at properties, hopefully you’re Realtor will be experienced enough to point out the not-so-obvious good, bad, and the ugly.
Determining Renovation Costs
Determining renovation costs will obviously vary property to property. With this being said, unless you’ve got the knowledge, you’ll need to rely on the expertise of a Realtor or a local renovation contractor to help you determine what it would cost to fix up a given property until you do a few deals and begin to learn from experience.
At the end of the day, though, remember we’ve only got $40,000 total to spend for this particular deal.
Once you find a property you want to buy, your Realtor will help submit an offer for you. Now, in our example, you planned on paying cash for the property, but you also have the option to get a bank to loan you the money to purchase a property.
I recommend you check out these posts next:
“How To Negotiate A Real Estate Transaction”
“How To Find A Bank To Finance Your Rental Property”