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Turn-Key Investing: Understanding your market and strategy

Written by Posted On Wednesday, 15 November 2017 05:46
Turn-Key Investing: Understanding your market and strategy Turn-Key Investing: Understanding your market and strategy Turn-Key Investing: Understanding your market and strategy

If you have started thinking about investing in your local market. There are certain things to consider before getting started. If you are investing in a large city like Chicago or Philadelphia, the market is going to be quite different than if you're investing in a smaller market like Birmingham, Alabama. For the purpose of this article, we will be discussing scenarios native to a smaller market, but that doesn't mean these strategies can't be effective in larger markets and the principles are the same.  


The reason people harp on the market is that it's vital you understand the market you are buying in before you make a purchase. a $100,000 investment on one end of town may be very different from a $100,000 in a lower level neighborhood. 


In a town like Birmingham, AL there are properties that will occasionally sell for just a few thousand dollars at auction and if you haven't done your due diligence, you could end up overpaying for a property and being stuck with it for years with no exit strategy. It's also important to understand who you are buying from. Is it for sale by owner? For sale by an investor that just put a lot of money into it? How much is owed on the property? What are the taxes like? Will it need renovations in the next 5 years? You have to consider all of these options to figure out if this property is worth investing in and even more importantly, what is your exit strategy?


Knowing your exit strategy


If you found this article, you likely didn't make it this far because you are looking to buy a house and live in it for 30 years. You likely came here for information on real estate investing. If you are investing in real estate, it's important to understand your exit strategy. What is an exit strategy? Simply put, how do you plan on making money on this property? There are two ways to pull money out of a property. You can either sell it or refinance it. If you are considering buying a property, make sure you know how much you can sell it for later. 


If you have purchased a lower end property, you risk not being able to find a buyer. For example, if you are looking to get $50,000 for a property, it's almost impossible to finance as most banks won't finance an amount that low. The only other option would be for them to pay cash, but your options become very limited when your buyer must come up with $50,000 in cash. At that point, your only option may be to sell to an investor who will only give you 40-50 cents on the dollar.


This is why understanding your end goal and exit strategy is so important! If you don't start with the end in mind, you may find yourself stuck with a property with no way out.



The right way to buy properties


If you first don't understand your market and your exit strategy, you risk getting stuck with a property you had no intention of keeping or having to sell for half of what you were expecting. That is the danger of purchasing a lower end property. A lot of people will tell you that you should get started investing by starting small with D level properties that cost under $10,000. However, that exposes you to a property that may be too expensive for a home buyer to pay all cash and too cheap for a bank to finance the property. 


There is a better way to do it, especially in a booming market like the Birmingham real estate market. 


Instead of focusing on lower level D level homes, consider starting with a few tiers up with a B level home. Think, first family house with good streets and a growing area. These types of locations will continue to appreciate and can cash flow at 10-12%. These homes also have a straightforward exit strategy as they can be wholesaled, flipped, rented or held. 


When evaluating the value of a property, don't just trust the numbers you see on a piece of paper or a generic site like Zillow or Trulia. These resources are great starting points, but don't always tell the full story on how it will perform.


The only way to fully protect yourself is to ask a ton of questions before making a decision. Ask the tough questions like what is the average tenant stay? What is the average rent? What are the yearly maintenance costs? How old is the roof? Is the electricity updated? How old is the HVAC? Do your due diligence. Ask the tough questions, and ask multiple people


If you are a hands-on investor, these types of tough questions can save you thousands of dollars over the course of your investing career. If you avoid just trying to find the cheapest properties and instead, look for properties in decent, B level neighborhoods you will leave yourself with more options as an investor. You will learn to skip on properties that need more work than they are worth, and instead, you can deploy your resources on quality properties with high returns.

Listing Additional Info

  • State: New York
  • Address: deyaldasa
  • City: new york
  • Zipcode: 10001
  • SOLD: no
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