It appears that investors are purchasing more homes as a share of the market than in previous markets. This is partially due to the number of foreclosure homes available at bargain prices and partially due to some of the obstacles preventing other purchasers from buying. Also, some of these homes are in “unlendable” condition which means that the purchasers are either paying cash or using private financing. The cash required for this type of transaction is beyond most 1st timers. Some of these are refurbished and flipped, and others are turned into rental units. In either case, the motivation is profit. Many of these investors know what they are doing, but not all. Those that don’t won’t be doing it very often. The most common errors are made in underestimating the repair cost, both in terms of time and money. Holding time is also a factor as an unrented or unsold unit eats up profit pretty quickly. However, if the right property is purchased at the right price it can be immensly profitable.
One of my first mentors told me that the profit is made in real estate when you buy it not when you sell it. I believe this to be fundamentally true. A wise purchase is much more likely to be profitable than one that is not made thoughtfully.
Questions need to be asked and answered. How long will it take to repair? How much will those repairs cost? Have I done everything I can to determine and/or allow for these repairs? Once it is finished, how long will it take to return or sell it and do I have the funds required to hold the property for that period?
Veteran investors only purchase if they see a significant profit. There has been a decided shift to an emphasis on cash flow, and this is often the primary consideration. You may also be concerned with the likelihood that you will be able to attract a good stable tenant or buyer, and how often the property will have to be re-rented. Three and four bedroom homes usually tend to be more stable that one or two bedroom homes, and single family units tend to be more stable that condominiums and townhouses. LL