In today's fast changing real estate market with the unprecedented number of foreclosed properties, it's a challenge just to know how much to pay for a piece of property. I know there are a lot of experts and real estate agents who say you need to hire a professional to give you an appraisal or competitive market analysis (CMA) of the property before you buy; but my question is who is more committed to determining the true value of the property than you the investor? No one is! With the investor it is not a client's job or business as usual, it's the difference between success and financial ruin.
As a serious investor, you are already surveying your local markets cataloging all kinds of information that may some day be of value to your investing career. After all who is more interested in your success than you are? You have taken the time to learn, to investigate and understand your "investing backyard", why should you now take the word of someone you don't know as to the potential value of a piece of property? Use your own knowledge and instincts to make investing decisions. If investors had been doing things like this for the last ten years, we probably would not be in the financial straits we are in now as a country. Getting other people with their own agendas involved in your decision making process adds time and cost to the effort.
Investors' know time is short when there are really good deals involved. Many good buys are lost because you were waiting for the professional appraisal before you could submit your best offer. One day, even hours can mean the difference between winning and losing a bid for a great deal. When you find a potential property and do your analysis, you have to act immediately. If you wait, another investor who was better prepared than you will get the deal.
I am not saying there is no need for appraisers or real estate agents nor am I saying they can not provide you a valuable service; all I am saying is that as an investor you can not wait on their input before you make your decision to buy or how much to offer. As the investor, the responsibility is yours alone. You have the most at stake in any transaction and therefore must make the final decision. Investors know this and respond by learning even more about the real estate market they invest in and the trends of where it is headed.
There is a place for professional appraisers and that is mainly relegated to commercial property and other types of sophisticated investments. But for single family residences that make up the largest part of any real estate market, you need to be able to properly assess the property's worth by yourself. If you don't think you have the ability to do this by yourself, then you need to learn more through self education and by obtaining the proper tools to help you build your real estate investment portfolio.
Therefore, once you find what seems to be a good real estate investment, you need to quickly determine several key aspects of the deal including:
- The value of the property in its current condition
- Your planned use of the property if different than its current use
- The estimated renovation costs for the project
- The estimated future value of the property when fixed up
- The final offer price and terms you want as part of your purchase
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