Planning ahead is the nature of being an investor. Every financial decision is weighed against how the markets will shift in the future. When it comes to real estate, you’re looking for diamonds in the rough. Undervalued properties are essentially what you’re going to be looking for. Every now and then, you’ll find a gem that fits the mold of increasing in value.
The question then is: how do you go about buying these undervalued properties? How do you find them? Combing the market without having an idea where to search out these prizes can prove to be tedious and fruitless. To help pull you out of that rut, we’re going to provide some tips on how to find and buy undervalued properties.
How Do You Go About Buying Undervalued Properties?
As you might come to expect, as any investor will know, searching out undervalued properties requires research and focus. However, once you have an angle on what signs point toward undervalued properties, the search becomes a little easier. There are deals to be had in every corner of the United States. All that you need is to be a little forward-thinking.
Compare the House to Its Peers
To have the best chance of finding that one house hidden in the weeds, you need homes to compare it to. For this, you’ll need to look a bit beyond simple looks. The best undervalued properties may very well end up being the houses that aren’t pretty to look at. They may have an ugly paint scheme, peeling wood, a rickety porch, and that’s only on the outside.
Here’s where the forward-thinking comes in.
To find the best undervalued houses, you need to see their potential. Compare a $250,000 house to the houses neighboring it that are worth twice as much. It may have been a great house once, but time and use have scraped away its former glory.
Oftentimes, the burden falls on you to return it to its original glamour.Putting in a little legwork is good for investment. It may take some spending, some hard days in the sun, and a whole lot of work, but the end result is a house just as good as the rest on the block, perhaps better. Buying a house that doesn’t quite stand up to par is seeing the future that it holds. It’s an exercise in boldness, tenacity, and insight.
Investment always has a few risks to it. However, if you play your cards right, this crummy house that you polish up to a sheen can exponentially increase in value as the neighborhood develops. It may not look like much now, but given time, its value will catch back up to it. All you need to do is provide it the means to do so.
Examine the Market
This may seem a little bit obvious, but thorough examination always overturns new leaves. However, what you’re looking for now are houses that have been sitting for months on end.
Usually, there’s something about these houses that make them somewhat undesirable to would-be buyers. There’s any number of reasons that have led it to this waitlist: overpricing, low quality housing, skeptical seller, you name it.
The primary factors that determine whether a house will sell quickly are price, location, and condition. Each of these variables may independently be responsible for houses left gathering dust on the market, or it could be a combination. However, just as these factors determine a house’s worth, they are also indicative of their potential.
A house that has been left on the market because of an overpriced offer can be difficult to wait on becoming undervalued. You may not want to wait on these houses quickly dropping down to a reasonable, profitable level. However, the longer they wait, the more likely it’ll be that they’ll become open to new offers.
Sitting on a house isn’t comfortable for any seller.
As far as location goes, you’re going to have a bit more luck. Areas that have experienced sudden changes in economic stability tend to have houses that plummet in value. This is an excellent time to capitalize on undervalued property. While the location for the time being isn’t as presentable as you’d like it to be, you’re looking at the long game. The region will recover, and when it does, the value of your real estate will rise with it.
As we’ve already addressed, the condition of the house plays a heavy part in how long it’ll stay on the market. For the most part, no one wants to buy an ugly house. What’s not to focus on is the looks, but rather the potential. Once the house has been renovated, it’s going to be much more impressive than when you snagged it.
Study the Sellers
A fantastic way you can go about buying an undervalued property is by looking at the people selling them. Sellers will tell you a lot about the value of their property, and can give away just how undervalued their house is. What you need to look out for are the motivated sellers that want to get their property off their hands.
There are a few questions to ask when you find a motivated seller. Why do they want to get their property off their hands so quickly? What are the circumstances surrounding the seller? How willing are they to negotiate?
Negotiation is going to be the key factor here. While the seller may be looking at a reasonable price for their property, an understanding of the situation can make that price malleable.
A good source to find information about the state of the seller’s position, as well as the overall value of the property, can come from any involved real estate agents. An agent won’t publicly announce an eager owner, but networking goes a long way. A private one-on-one with an agent can help reveal a method toward a bargain deal - especially if you provide a little motivation yourself.
Making the agent’s life easier is one of the quickest ways to negotiate a better value for the property. If you guarantee that you can close on the house quickly for a cheaper asking price than what is asked for, a motivated seller may become pliable. What’s important to remember is that they want to get this property off their hands. If that involves taking a lower sum, then so be it.
Pay Attention to the Economy
We mentioned before that economic shifts help determine undervalued property. If there’s a huge layoff in an oil centric city, property values may fall.
While things may seem grim in the short-term, and not very enticing, what’s important to remember is that the economy bounces back. Temporary upheavals in job security, economic growth, and property values spell out opportunity.
Attention to detail is critical.
If you’ve found that a section of the country has been hit hard by layoffs, recessions, or other changes that impact the worth of local real estate, it’s worth paying attention to. If you succeed on investing in undervalued properties in the present, all that’s left is to wait for the region to bounce back.
Counting on the inevitability of economic resurgence will return these undervalued properties to better standing. With proper timing, though it may feel unsavory, these areas create prime investments.
Focus Is the Key
The presence of undervalued properties on the market is never going to be forefront.
Most investors are going to be concerned with obvious, prime real estate.
If you’re going to find new opportunities for investment, you’re going to have to wade in and search it out yourself. It doesn’t matter how many tips you know, undervalued properties generally don’t reveal themselves.
Any investor knows that focus, dedication, and tenacity are the strong points of a successful investment. You may not find what you’re exactly looking for now, but the real estate market is constantly changing.
If you give it a little time, more and more properties are going to show up. Having a little bit of patience goes a long way.