Successful Real Estate Investing - Evaluating Your Target Property

January 19, 2008

While the severe downturn nationwide of the real estate market has caused financial hardship for many, it has also created opportunity for savvy investors to take advantage of.  With foreclosures at or near all time highs, and bank owned properties becoming more and more common, the ability to purchase real estate below market value is real.  If you follow a few basic guidelines, you too can make this real estate market a profitable one.  In this post, I will look at how to evaluate target properties.

It is very important to evaluate your target property correctly.  If you incorrectly value your target property, even the best laid plans can go awry.  A good starting point is to look up your target property on Zillow.  This will give you a base for your valuation.  Zillow will give you an estimate of the property value, but you need to do some additional homework at this site.  Don’t take the Zestimate they give you as your true value.  Click on the link that says “comparables” and take a look at the list they give you.  Look to see what has sold recently.  Toss out any sales that are over 3 months old, they mean nothing in today’s market for most areas.  Look at the comps that are less than a mile away.  You want to give even more weight to any comps within a quarter of a mile.  Don’t take the highest comp, take the lowest comps for a value base.

Next, make your way over to Realtor.com.  Once there, enter the city and state of your target property, as well as bedroom and bathroom count.  You will also want to enter a price range to bracket the general number you got from your work over on Zillow.  If you found comps ranging from $300k-325k, you might want to bracket $250k-$350k.  Click on search, select the property type that matches the property you are looking at purchasing and click on list view.  This will show you what is currently on the market that you will be competing with once you want to sell your target property.  In today’s market, these numbers could very well be lower than what sold 3 months ago.  You can also go to a map view.  This will show where the listings are on a map, which can be important depending on the demographics of the area your property is in.  Make sure you are comparing apples to apples when it comes to the neighborhood.

From looking at these two sources, you should be able to build a conservative and realistic value of what has been selling recently and what the properties currently on the market are listed for.  Remember, the listings are not sold yet.  If you plan on buying under market, doing a bit of rehab and selling for a quick profit, you may well have to price your property under what is currently on the market to move it quickly.  The longer you hold the property, the more it will cost you in interest carrying costs. 

If the property meets your guidelines after these brief exercises and you plan on moving forward with the purchase, I would suggest ordering what is called a BPO (broker’s price opinion) before you close.  You can typically order one of these for around $150, and they will give you a good valuation of your property.  This is not to take the place of a full appraisal, but rather in addition to a full appraisal.  What I like best about them is that they will also give you estimated price points based on marketing time.  I like to look at the 30 day quick sale value.  If you are looking for a BPO provider, try GoBpo.  They are nationwide, and do a good job.  If all of these valuations fit your criteria and the purchase is profitable, you’ve done your homework and should feel good about your decision based on a value perspective.

Remember, proper valuation is a very important, if not the most important, element of successful real estate investing.  Check back in, I will be addressing other issues involved with successful real estate investing, including acquisition and rehab financing options, sources for purchasing properties under market, sources for purchasing bulk REO’s and the pro’s and cons of buying a foreclosure.

If you would like to contact me regarding home loan options or questions related to this or any other topic, please feel free to do so.  Good luck in your endeavors!

Posted in Borrower Resources, real estate investing