Find a profitable property
The Jason Cohen Pittsburgh guide to beginning the investment process.
DO I NEED A REAL ESTATE AGENT?
HIRING AN AGENT
FORECLOSURES & SHORT SALES
FIND THE ARV
THE 70% RULE
SHOULD I GET AN AGENT?
Many experienced investors have made the wise decision to become agents. But, if you're just starting out in real estate, Jason Cohen Pittsburgh recommends working with a real estate agent. An agent, or a Realtor, is an extremely valuable asset in the search, purchase, and sale of investment properties.
The Multiple Listing Service is the single most valuable resource in finding investment properties. The MLS shows available homes by area, price, and status (whether it is under contract, etc.). A real estate agent can help interpret these listings and find value.
A real estate agent should be your advocate in negotiating a sales price with the seller. The agent handles the bids and .
A real estate agent's marketing is extremely helpful if you decide to sell your investment property. A knowledgeable agent can find comparable properties in the area to set an appropriate sales price. Help with staging and showing the home gets the property sold more quickly — you don't want the stigma of having a house that sits on the market for long.
WHAT TO LOOK FOR IN AN AGENT
As an investing group, Jason Cohen Pittsburgh always works with agents who area amenable to investors. We have a different criteria than owner-occupied buyers. It is essential for an investor to work quickly, and we're looking for return on investment as opposed to a great place to live. Finding an agent, or Realtor, who has experience working with investors is key to finding an agent who will be a good partner in the entire investment process.
FINDING LEADS IN A CROWDED MARKET
The potential in real estate investment is no secret. The market is rife with competition. When depending on MLS listings for leads, it's often about how quickly you can pounce on a property. This is far from a fail-safe strategy. At Jason Cohen Pittsburgh, we advise you to have multiple sources for investment leads.
Real Estate Investment Clubs are a great resource for any investing neophyte. These groups host meetings where local like-minded investors can get together and exchange ideas. Often, REI clubs bring in guest speakers to help educate members about investment strategy. They're also a valuable way to make connections with other investors and learn about properties that may be available.
A real estate wholesaler acquires property in bulk. These investors don't actually repair or hang onto a property for long. They get the home under contract and quickly flip it to another investor who will be in for the long haul. You can get great deals from wholesalers, as they often buy homes below market value. Having a relationship with a wholesaler can get you on the contact list when a property is available. An REI club is a great place to network with wholesalers.
SHORT SALES & FORECLOSURES
You can get great deals in real estate when buying foreclosure and short sale properties. The process for purchasing these homes is different than standard transactions in which the owner is willingly selling the property. The profit potential is huge, but you should be well-versed in the process.
A short sale occurs when an owner owes more than the property is worth. The bank does not yet own the home, but in order to perform a short sale, the bank must be willing to accept a lower offer, which is often below market value. The owner is facing foreclosure — the closer they are, the lower the asking price. However, banks don't want to have to sell a home at a lower price, so "short sale" often becomes a misnomer and the negotiation process can be quite lengthy. Yet the banks usually still see this as a better option than foreclosure due to all the fees they incur when they own a property.
At this point, the bank owns the property and you deal directly with them when purchasing a foreclosure. Because the federal government prefers that homes be owner occupied, occupant buyers get the first shot at these properties. So, watch them closely on the MLS. After the requisite time period has lapsed, investors have their chance at buying these properties. Sometimes foreclosures will be in such poor condition that they don't qualify for financing. Since not all banks will make the necessary repairs, this tends to eliminate many buyers. You have the opportunity for huge profit on these properties.
DETERMINE MARKET VALUE
This is best left to an agent. In order to get the most accurate understanding of market value, you'll need to examine comparable properties in the area that have sold in the past six months. A professional opinion is the key to accuracy here. If you plan to rent the property, it's equally important to determine market rents to gauge how much you can earn from tenants.
AFTER REPAIR VALUE
The ARV is essential in figuring out your profit. Calculate how much your planned repairs will raise the value of the home while also keeping track of all the expenses you project to incur in the renovation phase.
CONSIDER ALL THE COSTS
Don't forget the marketing costs that you'll incur when selling or renting the property. Always be conservative and estimate on the higher end. Leave padding in your costs to account for any unforeseen circumstances that may arise. Trust Jason Cohen Pittsburgh on this — there are always surprise costs.
THE 70% RULE
This informal industry guideline states that a solid investment costs no more than 70% of the ARV minus the repair costs. So:
Purchase Price < (0.7 x ARV) - Repair Costs