The idea of what is valuable varies from one person to the next. One person can think tickets to a big sporting event or concert hold great value while others would have no interest in them at all. It is all relative in the real estate world – the same can be said about two people looking at the same piece of real estate. One investor may look at the property and within two minutes know that they will not be making an offer. Another investor can look at the same property and have dollar signs ringing in their ears thinking they may have just hit a home run. How a successful real estate investor thinks is what separates them from the pack. When it comes to finding value in real estate, one man’s trash is often another man’s treasure.
The condition of the property is typically the deciding factor when initially determining value. If you walk into a property with a urine smell and rotting walls, it can be very easy to want to run right out of the front door. In addition to the smell, you know you will have your hands full with the work in the house and the costs associated. Where you see value is in the fact that the home will hold a higher future after you are done with your repairs and upgrades. If you can get past the odor and the appearance, there is money to be made with the property.
There are plenty of savvy investors that will see value in the neighborhood and the “bones” of the property rather than its current state. If you can get to the property first, it is your job to make the seller see all that is wrong with the property and sell to you quickly. You need to show either with pictures or written estimates the warts on the property without overplaying your hand too much and causing them to wonder what you are seeing in the property that they aren’t.
Almost anything can be fixed in a property if you put enough time and money into it. The after repair value lies if you can see what any changes will do to value after you are done. Most buyers will get turned off by garbage, urine and excessive debris. The reality is that in most cases this is cured by a good professional house cleaning and a 20 yard dumpster. There are some instances where the damage has gotten into the hardwood floors and needs additional cleaning, but even that should not be a deal breaker.
If you are investing in a market with high investor demand, you either need to get to the properties first or look to find value where others don’t. In most cases, this means buying the ugly duckling and getting value through the work you do. This is a strategy that works for many investors, but you will have to be willing to get your hands dirty and look past a properties current condition. Properties with water or fire damage may be right up your alley. Typically, the more a property is passed over, the deeper the discount you can get it for. These are the types of deals you should be looking for. Just because one investor passed it over does not mean it is a bad deal for you.
