Strategic Approaches to Purchasing Investment Properties
InsightInvesting Strategies

Strategic Approaches to Purchasing Investment Properties

Investors, brokers and many real estate agents are constantly on the hunt to purchase properties that can yield a high rate of profitability and a solid return on investment.

Whether it’s a short sale, a small fixer-upper or a major rehab project, the rewards can be significant with the proper planning before the purchase is made.

Many investors, however, fail to take a strategic approach to purchasing properties. They see what appears to be an attractive deal and want to jump in quickly, fearing the property will be sold to someone else. Instead of reaping a nice return, they scramble to break even. Some lose money, often a substantial amount.

Here are several strategies gleaned from more than 15 years as a property investor. These can help you make better decisions and better investments.

Create a strategy

Investors need to analyze their situation and create a goal. Is the objective to buy and hold long-term or sell the property immediately? Each approach requires different planning and different execution.

Determine how the project with be financed

Ascertain how the transaction will be funded. Do you have the funds for a cash deal, or will a loan be necessary? If additional funds are necessary, you must determine how much will be needed and address the terms required.

Develop a good team

Once you determine the scope of the project, you can determine the amount of work it will take to get the property ready for the market. This may call for a contractor, a closing agent, a property manager and the right agent to sell it. Having a team in place with the correct experience is a necessity to provide a favorable result.

Keep it local

Many new investors – and even some veterans – make the mistake of trying to execute transactions outside of their hometown. They look beyond their metro area, even outside their state. These investors can spend dozens of hours traveling to their sites, monitoring construction and fixing problems. Many good deals can be found within a relatively short drive of most areas. Keeping it “local” keeps the costs in line and helps to maintain the accompanying stress at a manageable level.

Improve negotiation skills

Real estate prices are highly negotiable. Investors need to do their homework and choose a strategy that results in the highest level of profitability possible. Many new to the investment game will grab a property at or near the offering price when the home could have been purchased for thousands less. Buyers need to have a process that includes asking enough questions to uncover the primary objectives of the seller. The seller may be in over his or her head in the mortgage and need cash immediately. Maybe the sellers are an older couple wishing to relocate into a smaller house or, conversely, a younger family that has outgrown its current home. Some may be looking for a quick sale. Others may have the luxury of time and are in no hurry. Asking the right questions can you help ascertain their needs and respond accordingly. The goal is to create a win-win situation for you and the seller without leaving your profits on the table.

Avoid extensive marketing programs. Once you purchase the property and wish to sell it, you have to determine how other investors will learn about it. It is best to sell it yourself directly to buyers without engaging third parties to help in the process. Creating a database of potential purchasers and contacting them directly can produce a speedy result. Hiring a marketing agent and spending money on advertising may not only slow down the process, but can drive your costs and the price upward.