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What's the number one reason not to purchase a property? The Price.
Seems contrary to logic, doesn't it? A property that costs $1000 has to be a good deal at some point, right?
Most investors are simply not prepared to deal with the huge amount of vacancy and vandalism that has ravaged some areas of Detroit and the surrounding suburbs.Â
Especially if you live in a city where there is a good amount of occupied homes and infrequent vacancies- this is a hard concept to grasp.
I get it.Â It should be logical that property selling at such a ridiculously low price will inevitably have great potential for fix-up and huge profit margins, but it just doesn't happen this way.
So, what's the problem?Â The problem is that there are thousands of vacant homes from the foreclosure boom that has suffered harsh winters, total neglect, vandalism and burglary.Â This produces a huge amount of empty, dilapidated inventory.
If the property you're considering is very close to many burned or vacant homes, no matter how much you make it a palace, it will likely be slow to rent and in constant danger of break-ins.
So, I know it's tempting! I know those homes advertised for $1000 or less are too good to pass up, however, the old saying is really true: you get what you pay for.
Let's do the numbers:
Purchase price:Â Â $1,500
or lessRepairs:Â Â Â $5,000-15,000
Title clearing:Â $1,000-2,500
Past due taxes/water bills: Â $2,000-4,000+ *will vary, but is almost certain to be charged when buying cheap homesEstimated total: $10,000-20,000+
(don't forget the time required to rehab the home)
Notice that by the time you add in all of the hidden costs, your price has skyrocketed!Â
Even though the Metro Detroit market is down, real estate inventory pricing is rising steadily due to some recent economic turnarounds and a shortage of cheaper inventory.
Additionally, there was a ton of foreclosure inventory that has already been sold, refurbished and put back into service as viable property, which improves their value.Â As those values come up, so do area prices.
You may get lucky once in a while and pick up a great property for a steal. However, if your goal is long-term acquisition, in order to build a solid rental portfolio, "getting lucky" is not a sustainable purchase strategy.
So, what should be the #1 Determinant when purchasing?
Your Business Model.
What is your ultimate goal for purchasing? Is it to produce a certain amount of income monthly? Sell to buyers? Produce an annual return on investment?
Investors must be crystal clear about their purpose for acquiring homes before spending one penny. It doesn't take a 500 page business plan, just a simple outline of what you're seeking from the investment.
You'll need a very brief, written statement of the following:
Once you have a target, it will be unbelievably easier to hit your goal.Â
- Your goal for buying- rent, flip, wholesale, etc.
- What is the model of home or property you're buying?
- Who is the ideal tenant or buyer?
- How much should the properties produce?
If you need help choosing the right investment properties, contact our team anytime!
Good Luck and Happy Investing!
Patterson is a licensed Realtor in Michigan. She currently holds
certifications as a Certified Investor Agent and Certified
Foreclosure/Short Sale Resource.
She has sold hundreds of
Investment Properties to Investors from all around the world andÂ loves
them invest wisely for immediate cash-flow, as well as long-term gain.
Letitia's mission is to help make Real Estate millionaires!
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Letitia N. Patterson
Cell: 248 506-9426