4 Signs A Property Is Worth Buying
As a property buyer, you want to ensure that you're getting a good deal in your real estate purchase. It means that the property should be in good condition and location. While the price matters, searching for a property that you can repair and renovate with minimal time and effort is not easy. Even with an excellent home inspection, there could be hidden problems that aren’t easily identifiable and issues that arise without warning.
The ability to discern if a home is worth buying at first glance takes a keen eye. You need to equip yourself with the right knowledge, training, and perspective to assess properties that are worth a good investment. In this post, you'll learn how to determine the signs that a property is worth buying. Let's get started!
1. Selling Price Below Appraisal Value
An appraisal will reflect if the price the seller quoted is reasonable or fair enough to ensure you're not paying more than the property is worth. One way to check if the property is worth buying is assessing the purchase price and the appraisal value. Remember that the appraisal value plus ten highly determines the fair market value to 20% over the value assessment. Here's how:
Let's say you're buying land on Gumtree, and you're interested in the property.
Get and enter the address of your prospective property investment on the appraisal website (e.g., Zillow, Trulia, Realtor.com, or Chase Mortgage Services).
If the selling is below the appraisal value assessment, there's a 90% chance that you'll profit from this property.
2. Original Roof Line
The roof is the most vulnerable part of any property. That’s why looking at the property's roofline is a crucial step when buying a property. The roofline can tell you if the house or building looks sturdy, simple, elegant, complicated, or weak or vulnerable. The rooflines will reveal the following:
Conditions of the gutters and drainpipes. Snow, rainfall, and high winds, along with autumn leaves, causes blockages causing damage to the roofline. If roof maintenance is neglected, it may cause major problems.
Still has original wooden fascias. The coating on wooden fascias become cracked or chipped over time., that's why rainfall tends to be soaked up by the wood. It eventually dries, swells, and warps, causing serious cracks and wood rot. You can talk to a trusted roofing contractor who can help you with major roof repairs and upgrade roofing.
3. Good CAP Rate
The capitalization rate or CAP rate is a popular measure used in assessing the profitability or return potential of real estate investments. It represents the ROI of a property over a one-year duration assuming that the property is purchased by cash and not by a loan. To compute the CAP rate, take the annual net operating income or NOI of the building and divide it by the purchase price. For instance, if the investment property costs 2 million dollars, generating $150,000 of NOI a year, then the CAP is 7.5%. When determining whether a CAP rate is right for the property, you need to check the following:
Location. The location of the property drives demand. Properties near downtown have a lower cap rate and risks as compared to properties located in the suburbs.
Interest rates. If the federal government adjusts rates, there’s a fluctuation in the CAP rates which is up to 1%. Rising interests rates mean a fall in the value of properties, an increase in the cost of debt, and a decrease in cash flow, so you need to be aware of what direction interest rates are heading.
Asset class. People need a place to live, regardless of the economy. While you can invest in office, retail, hotel, or industrial properties, multi-family has the lowest perceived risk. That’s why multi-family has the lowest CAP rates.
4. Ugly House But Good location
One common mistake committed by real estate investors is prioritizing the perceived value of a property through its aesthetic appeal. Let go of your lofty expectations and buy an ugly-looking property, then renovate. Old appliances and old countertops won't kill you. Instead, prioritize considering the following when choosing a property to buy:
Location. As long as the place is perfect to engage in real estate business, like apartment rentals or office rentals, buying an ugly-looking property is perfectly fine. You can pay on repairs or major renovations and get a steady flow of income in a very appealing location.
Economic status. A developing economy or a booming economy provides the perfect area to do business. Check the business condition of the local area, developing commercial areas, housing, and construction of schools and community centers.
Foundation. Even if the exterior looks bad, ensure that the building has a strong foundation, so the major renovation cost is lower. Hire an expert property inspector as needed.
Conclusion
Don't be deceived by the looks of a property. Instead, go in-depth with research and inspection. By checking the signs of good property investment, you'll be able to make the right decision and become successful in achieving your real estate business goals.
