Know What to Look For in Your Residential Real Estate Investments
In the following weeks, we will be focusing on the art of purchasing wholesale investment properties. We will be covering topics such as how to find wholesale investment opportunities, negotiating, contracting, and closing.
Today, we will start with the first step, which is a discussion about specifically what type of properties to look for.
Here are a few, most important property features to will help you find the best rental properties:
- Single Family Homes
- Established subdivision
- Standard Construction
- Deferred Maintenance “Handyman Special”
- Solid, middle class and up neighborhoods with good appreciation prospects.
It’s often said that it’s much easier to find something if you know exactly what you are looking for. The same is true when you are trying to find wholesale investment properties. There are 2 primary strategies for real estate investors: One is to buy, fix, and sell (“flip”), and the other is to buy, fix, and rent. Previously, we analyzed the profit potential for these two strategies. Some houses are much better suited for long-term rentals and some are better suited for short-term flips.
Generally speaking, a long-term hold property should offer excellent prospects for appreciation and be in the type of neighborhood that will attract quality tenants. Many beginning investors look at the cash-flow from very cheap, small houses in distressed neighborhoods and believe this is the most important characteristic of a rental. The problem with this strategy is, small, cheap houses in distressed neighborhoods do not appreciate at the rate of larger homes in better neighborhoods. It is also difficult to attract and keep quality tenants in these small, cheap houses. Therefore, if you are looking for wholesale investment properties to hold as rentals focus on solid 3/2, 4/2 middle-income homes in quality areas. I like to focus on what I term “upward-transitional areas”. Try to buy quality homes cheap in C+ neighborhoods that are in upward transition to “B” and eventually “A” neighborhoods. This specific type of property for a long-term hold strategy has created many real estate millionaires.
If your plan is to buy, fix and sell then focus your search in areas where homes are selling quickly. It is fairly easy to determine what the average days on market is in any specific zip code. Access to the MLS database, either directly or through a Realtor friend can quickly give you the data you need to find these fast-sell neighborhoods. I would recommend working with middle-income and up houses. Small, cheap houses in distressed neighborhoods are very hard to sell.