5 Property Problems that Provide Investment Opportunities
By JD Esajian on March 8, 2019
The most successful real estate investors are optimistic. Instead of seeing the glass half empty, they often see it half full. This doesn’t mean they are blind to the problems with a property, but they don’t dwell on them. Some of the best deals you can have in real estate are the ones nobody else wants. There is a large segment of investors who form an opinion of a property based on a 30 second snap judgement. The don’t like the price, layout, look or smell and instead of investigating a little, they quickly move on to the next one. It is only when they see the home sell on the MLS do they realize they may have made a mistake. As the old saying goes, one man’s trash is another man’s treasure. Here are five property problems that can provide tremendous investing opportunity.
- Overgrown Exterior. You should never judge a property by the exterior. First impressions may be important to potential buyers, but they shouldn’t hold much weight for you. Sure, it can be intimidating walking up to a property where you can barely find the front door. However, one of the common themes for this post is that almost anything can be fixed, updated or changed with a property if you are willing to spend money. Before getting to that point you need to give the property an honest evaluation. Don’t be intimidated by overgrown shrubs, fallen trees and broken shutters. They can be an eyesore, but they are also something a local landscaper can fix in a few days. Finding the property among the trees, shrubs and grass can be a challenge, but it shouldn’t dissuade you from going in. In fact, this can be the best thing if you are interested in the property.
- Distressed Exterior. There is a story behind every distressed property. Some take a lot longer to move to legal action than others. It is not uncommon for a foreclosure to take months, depending on the state and the circumstance. During this time the homeowner may get frustrated and annoyed with the lender, and everyone around them. It is not uncommon for them to simply let the property go right before the lender takes possession. By the time someone enters the property it can be weeks later. The smell upon entering these properties is often indescribable. It is a combination of rotten food, mold, mildew, urine and number of other items. As much as you want to run out of the house, you need to put your mask on and continue. Rotten smells are awful, but can be fixed by pulling up the carpets, bleaching the floors and priming the walls. With the right remedies you can cure a terrible odor in just a few days. If you manage to stick it out, you can be left with a property that has plenty of potential.
- Pricing. Price should never be the sole influencer for you not pursuing a property. There is often a big difference in the price a seller wants for the property, and what they can actually get. This is especially the case if you know the area. The lender may order an out of market real estate agent to conduct a BPO on the subject property. They don’t know the ins and outs of the local market and rely on outdated comps, or comps that don’t tell the true story. If you know the area has been flooded with foreclosures & short sales, you need to use this information to your advantage. There is nothing stopping you from seeing the property and submitting an offer at your number. As long as you can support it with comps and a cost of repairs estimate you should be able to initiate dialogue that can turn into a deal. There are times when this will be wasted work, but all it takes is one of these deals to make it all worthwhile.
- Distressed Interior. The same idea with ignoring first impressions of the exterior apply to the interior. There will be times when you will walk into a property and immediately want to run out. The garbage is piled up ankle high and the smell is almost too much to take. As bad as this is, the reality is that in most cases you can get rid of the garbage with one large dumpster. You always want to envision the property completely empty. With a blank canvas in mind you can make the changes you deem necessary and see what kind of product you have. Doing this with toys, food and debris all over the place is difficult, but essential if you want to find hidden gem deals.
- Outdated Interior. Many investors struggle with the concept of value. You may not personally like the floors, cabinets, furnishings and layout but it doesn’t make the property a bad investment. As we stated, you can change almost anything with a property. Outdated cabinets or countertops can be the best thing to happen on a property you really want. Not every investor has access to capital to make these changes. If the price tag is too high, they are forced to bow out, even though they see potential in the property. Having a large list of improvements and updates only helps you get the price you want. When there is less demand and reduced competition the seller knows they should be open to any offer that comes their way.
Always view every property with an open mind and never take a property at face value. Problems can equal opportunity in the right situation.