11 Jan How to Find Bargain Properties — Even in Hot Markets!
For years now, Denver’s housing market has gotten hotter and hotter. With the global pandemic and winter months, the supply has dropped considerably. This means that the market is more competitive and housing prices are still on the higher end. Many of you might be thinking, “Billy, this is hardly the right time to invest in real estate!” But, you’d be wrong, there are still opportunities to find bargain properties.
I remember a few years ago a woman attended one of my real estate mastery workshops. She told me she really enjoyed my teachings but there was no way she’d find an investment property in Denver. I challenged her to take my formulas to a real estate investor and see for herself. A few months later she emailed my team to let us know she’d done it! There are ways to find bargain properties in hot markets, and in today’s blog post, I’m going to show you how.
Keys to Finding Bargain Properties
Key 1: Know What You Want
First, you’ve got to establish clearly what you’re desiring to accomplish. This allows you to know what to say no to. There will be plenty of properties that are good investments but they’re not necessarily good for you. That’s why it’s important that you establish clearly what you’re desiring to accomplish. A great goal to clearly establish what you want is simply this: replace your current income.
What is it that you have to do through investing to replace your current income? That’s what we talk about when we talk about Level 2 income, assets you own that produce income. Even though we’re going to talk about buying and selling real estate, we also really want to focus on buying and holding for an income that replaces what you currently make. When you start understanding that as your goal, it begins to clarify what you’re looking for.
Key Two: Play the Numbers Game
Finding bargain properties is a time investment. Some people say you have to look at 100 properties to get a good one. I can tell you what my experience has been in real life real estate investing: once I give a real estate agent the formula I’m adhering to, they show me properties that align with it. The formula is this: the total investment needs to be no more than 80% of the real value of the property. That includes after my repair and carrying costs. In that, I also want a $300 a month spread after principle, interest, taxes, insurance, and management.
You can put a system on the ground with a real estate agent that will allow you to leverage your time, so you don’t have to spend as much time looking. You let them pre-screen the properties for you, so you only look at the best deals.
Key Three: Look for Distressed Properties
Distressed means the physical condition of the property. This is important because you want to buy properties for less than you know the real value would be. You will know the real value of the property is more than the price because of the location of the property, the size of the property, or “fixing it up” to increase the value.
You want to purchase a property that needs only cosmetic improvement. To be able to move forward, it’s important that you have some idea about how to inspect a property. In order to do this, you’ve got to find a quality professional inspector and get a written report. I can’t tell you how many times that has kept me out of serious trouble. I have tried to bypass that and use less expensive inspectors. In some cases, I’ve tried to just use the contractor that’s going to be doing repairs as the inspector which is a tremendous mistake. You want that third-party opinion so that it is unbiased.
Key Four Determining Value
There are a couple of ways to determine the value of a property. The first one is looking for what similar properties in an area have sold for. Keep in mind, you’re looking for actual sales prices, not just the listing of prices. Another way to determine value is to look at replacement costs. In other words, what would it cost to rebuild the house that you’re looking at? Are you getting it at a good price within that range? The last one is simply income. What kind of income will the house produce for me? When you’re looking at the income of a house, you’re always looking for positive cash flow. That’s what helps you evaluate. You want to look for a 1.5% monthly return on each property.
For example, if the total cost of the house is $100,000, I want a 1.5% monthly return, so I’m looking to get $1,500 per month in rent out of that property. I value houses based on rents as well. Will the house actually rent for a price that makes the cost of the house worth it? You might have to end up keeping a property and holding it for longer than you thought, so you want to make sure you can actually get rents that will put money in your pocket.
These are just some of the keys to finding bargain properties I teach in my real estate material. It is possible for you to earn passive income, pay off your debt, and live financially free. If any of those are your financial goals for 2021, I encourage you to consider investing in real estate. Need help getting started? Check out my real estate teaching materials to get you from beginner to multi-property owner.