When I talk about getting a good bargain on a property…
It all starts with the purchase price, doesn’t it?
The price you price you pay for a property goes a long way toward the profit you’re going to get from that property.
That’s why I say your profit is based upon your purchase price.
Especially for chunk deals that you want to flip or pull the equity out of soon to buy more properties…
That’s also why knowing how to negotiate effectively to get the right price is so important on your deals…
The better you negotiate, the better deal you’re going to make for yourself…
And this applies to cash cows as well.
The deal seems too easy
But what if you get too good of a deal on a property?
What if the seller simply agrees to every negotiation point you make?
What if you offer a price so ridiculously low that you’re ready to make a substantial counter offer to it…
But the seller agrees to your lowball offer?
Psychologically, this is not very satisfying, is it?
Most of us want to feel like we “earned” our bargain by clever and firm-but-fair negotiating…
But there’s something much worse than feeling less than satisfied in negotiating your deal…
That’s when the seller is too easy.
Heed the warning signals
At that point, there should be warning lights should flashing in your brain…
Telling you to “Beware!”
Now, you’re probably thinking, “Wait a minute, Dymphna, how can anyone get too good of a deal?”
Or maybe you’re wondering…
“Isn’t getting the lowest price the key to getting the best bargain and the most profit?”
Of course it is…
Do your due diligence
But there’s also a bit of due diligence that comes into play here…
Remember, it’s not just a house you’re buying…
You’re also buying the neighborhood…
You’re buying area around the house.
But let’s start with the house itself first…
Is there a structural problem with the house?
If so, any inspector worth his salt will discover what it is…
At which point, you get three contractors to give cost estimates for the repairs…
Knowing contractors as I do.
Expect to pay the highest estimate.
The bid price and the final price will often have little to do with one another…
The bid price is designed to get the contractor the job…
The final price is what you end up paying after all the “unknown problems” are taken care of and the job is finally done…
So budget for the higher amount every time.
Is the neighborhood dying?
Next, you need to check the neighborhood itself…
Is it located near a hazard of some kind?
For example, is the neighborhood in a flood zone or near a factory that puts out horrible fumes?
If it is, that would help explain the super “bargain” that you’re getting on the property, wouldn’t it?
A chat with the neighbors is smart idea…
Find out what they think of the neighborhood…
And what they don’t like about it.
That could be key information you need to know that the seller won’t tell you.
Another consideration is, what do the other houses on the street look like?
Are they in rough shape or are they taken care of?
Are they all rentals with cars parked at all angles on the drive?
And are the cars parked along the street new and old or just old?
What kind of people do you see walking in the neighborhood?
You need to see the neighborhood and the area as it really is…
That’s why you want to visit the property at different times of the day and the week.
You will also need to know what the local counsel has planned for the area…
Will there be a new factory built nearby?
Perhaps a bit too close to the neighborhood?
Or, are there companies moving out of the area?
Is the neighborhood sliding into disrepair because jobs are leaving the area?
What’s the crime rate?
You’ll also want to know what the crime rates are for that “bargain” area, won’t you?
Is crime in the area above average or rising?
You don’t want to put yourself in danger when you go there to collect the rent!
Have a chat with your agent to find out the rental climate there…
Are most of the properties short term or longer-term rentals?
Are rental rates keeping pace the national average?
Or are they falling behind?
If rental rates are lower than the national average, why are they?
Does this mean that you shouldn’t try to get the best price on every property?
Of course not!
Your entire portfolio profit depends quite a bit on getting below market price…
And then manufacturing value to those properties if at all possible.
Don’t buy a hopeless property
But you want to avoid is taking on someone else’s problem property…
Because then you’re on a dead end track.
It doesn’t matter what the property may be…
If it’s a chunk deal or a cash cow…
Or a splitter or granny flat add-on…
If the area is declining or difficult to sell in or to get steady rental income…
How much of a bargain is it really?