7 Things to Look for When Purchasing a Property
Updated: Dec 15, 2022
If you're in the market for a property, whether it be distressed or retail, it's important to be aware of the things to look for before making your purchase. Real Estate is the oldest and largest source of investing for a reason. There’s been a recent glorified hype around buying and flipping homes, but there are also several risks are also involved.
Here are seven things to keep in mind when buying a property, whether it’s your first or tenth time:
1. Check the neighborhood.
Before buying a property, you must do your due diligence and research the property and the surrounding neighborhood. Is the area safe? Are the schools good? Is the property close to public transportation? Are there any abandoned homes or undeveloped land? Are the neighbors maintaining their yards and trash? These are all essential factors to consider because they will impact the property's ongoing value.
The best way to get a feel for a neighborhood is to drive by and look around. A quick drive-by can tell you a lot about the condition of the home and the state of the neighboring yards. Have conversations with the neighbors to understand their experience living in the area. You can also get an idea of the crime rates in the area by doing a little bit of research online.
It's important to feel comfortable with both the property and the neighborhood before moving forward. Otherwise, you may find yourself regretting your decision down the road.
2. Have a professional inspect the property.
Once you've decided you're interested in pursuing the purchase, it's time to get a professional inspector to look at the property. They will help identify any significant problems that need to be addressed before you move in or rent out. This is crucial, as it enables you to gauge just how much work needs to be done on the property and if it's worth your time and money. The cost for a single-family home inspection is usually between $500 - $700 depending on what you elect to be included. It can increase if you’d like a radon test or termite inspection done.
Remember, however, that even if the inspector finds a few minor problems, that doesn't mean you should write off the property entirely. After all, every house has its quirks and character. You can use the results as a negotiation tactic to reduce the purchase price or have additional work competed prior to move in. Don't be discouraged if the inspector identifies a few minor repair projects that need to be completed. With a little bit of elbow grease (and maybe a small loan from the bank), you can turn that fixer-upper into your dream home.
3. Get an estimate of repair costs.
Before you start tearing down walls or spending hours scouring the internet for DIY tutorials, it's important to get estimates from professional contractors on how much the repairs will actually cost. Obtaining accurate estimates from reliable contractors can be tricky, but it's worth taking the time to do it right. After all, you want to avoid being over budget and with a half-finished project on your hands.
Once you know what needs to be fixed, this will help you determine if the purchase price + construction/repair costs are still lower than what similar properties in the area are selling for. If not, it may be time to leave this deal on the table.
However, if you decide to move forward with the purchase, get multiple estimates from different contractors to ensure that you're getting the best possible price for the repairs. Another huge factor is how long the work will take to be completed and if you are covering the costs out-of-pocket or through a construction loan. Knowing how much you’ll additionally owe in interest over a certain period of time is key to analyzing the property. So take your time, do your research, and get those estimates! It could mean the difference between finding your dream home and getting stuck in a money pit.
4. Review the title report.
Before making an offer on a distressed property, review the title report with your real estate agent or attorney. This will help ensure that there are no outstanding liens or mortgages on the property that could cause problems down the road.
For example, if there is an outstanding mortgage on the property, the bank may foreclose on the property if you default on your payments. Additionally, if there are any outstanding liens on the property, you or the current owner will likely be responsible for paying them off in full at closing before taking ownership.
Plus, it is always a good idea to have a professional appraisal of the property to ensure that you are not overpaying for the home. Your real estate agent or attorney can help you review the report and answer any questions you may have. With their help, you can be confident that you're making a sound investment that won't come back to bite you later.
5. Have cash on hand (or line up financing).
Banks are in the business of lending money, so you would think they would be open to financing distressed properties. However, they often view these properties as too high-risk and unwilling to provide funding. That's why it's important to have other sources of financing lined up, such as private lenders or hard money loans. This way, you'll be prepared if your bank declines your loan request. This type of borrowing has it’s advantages, such as quicker approvals and funding. However, you will likely be paying an inflated interest rate to these additional money sources due to the increased risk.
Additionally, it's a good idea to have your financing in place before making an offer on a distressed property. You’re able to get pre-approved by hard money lenders to have a proof of funds ready with your offer if needed. That way, there are no surprises later on down the road. By being prepared and researching, you can increase your chances of purchasing a distressed property successfully.
6. The competition.
One important factor to consider when buying a distressed property is the competition. How many other buyers are interested in purchasing the same property? If multiple offers are on the table, you'll possibly need to be prepared to pay more than the asking price to win the bid. However, if you're the only buyer interested in the property, you may be able to negotiate a lower purchase price. Over the past couple of years we’ve seen a drastic increase in home prices in a “seller’s” market, where homes were consistently sold above asking price. Ever since interest rates have increased, we’ve seen a shift towards a “buyer’s market” with prices coming down and stabilizing. This isn’t necessarily good news for buyers in general though, because money is now more expensive to borrow.
In either case, it's essential to do your research and clearly understand what you're willing to pay for the property before making an offer. With a bit of preparation, you can increase your chances of success when bidding on a property.
7. Be prepared for a lengthy closing process.
The closing process on distressed properties can often take longer than usual due to difficulty coordinating with all parties involved (e.,g., mortgage company, contractor, or real estate agent). Additionally, you're not just dealing with the mortgage company and the real estate agent- you've got contractors, plumbers, and maybe even the previous owner who's still living there that you have to coordinate with. If you're not prepared for a lengthy closing process, it may not be worth pursuing this purchase.
However, if you're up for the challenge and you're prepared to roll up your sleeves and do some work, then a distressed property can be a great deal to get a property at a below-market price. With a little bit of planning and preparation, you can successfully navigate the challenges of the closing process and come out with a great property that meets your needs.
Whether it's a fixer-upper that just needs a little TLC or a complete gut job, purchasing a distressed property can offer an excellent opportunity to get a deal on a home and investment—but only if you do your due diligence first! By keeping these seven things in mind, you can help ensure that you buy a property that meets your needs and budget—without breaking the bank.
And if you are interested in selling or purchasing a distressed property but don't want to deal with the hassle, well, Fenix Property Group is the perfect company for you! As a buyer ourselves, we will help you find the ideal property and get it at a great price. We are experts in purchasing and renovating these properties, so we guarantee that the whole process is as smooth as possible for you.
Contact us today or fill out the form here on our website to get started!