It goes without saying that the goal of most investors is to get the best deal they can when buying property. No one wants to spend more money than they have to and everyone wants to make a profit.
What should you think about when deciding whether to purchase an investment property?
Does the property have subdivision potential? If yes, this could be a great investment. Sub-dividing and then selling or developing the additional lots can be very lucrative. However, developing property takes some considerable knowledge and skill, so be prepared if you decide to tackle this task.
Is the property a diamond in the rough? Many properties that appear to be ‘fixer-uppers’ can put off buyers and go unnoticed in the market. If the issues are easily fixed, it may be worth spending the money to renovate if you can make a return.
Does the property have a below-market lease in place? Often owners will accept lease terms below market value to secure a long-term lease. This can impact the value of the property’s resale price based on achievable yield in some locations. Buying a property with a below-market lease in place is quite often a great way to secure a good buy. You may have to ride out a number of years at a lower return, however once the lease expires, the rate can return back to market level and instant equity is achieved in the property.
When you’re happy that the property meets your specifications, you need to consider how much you would be willing to pay for it and any opportunities that may enable you to lower the price.
Research both the market and the person selling. You need to know the amount of buyer interest in the property, how long it has been on the market and what similar properties have sold in the area to establish market value. Just as importantly, you need to know about the seller. What is his or her motivation for selling? Is it urgent? Has the price been lowered in the time it has been on the market?
Flexibility is important. Often, the price is not the only important thing in negotiations. Many sellers will value a fast and unconditional settlement. Ask what other terms are important to the seller, as this may help negotiate a better deal.
Hold your cards close. Keep a poker face and do not let the seller know your position. Instead, let the seller know that although the property may be suitable, you are also considering other properties.
What is your decision-making process when deciding whether to buy an investment property?