Once you have identified that a seller is motivated, you need to be able to identify what the most profitable exit strategy will be. There are three common exit strategies: 1.) Buy, Fix, Sell, 2.) Buy and Hold, and 3.) Wholesale (or assign a contract). There are several things that you need to keep in mind with each exit strategy as you evaluate the property.
The first exit strategy we are going to discuss is a Buy, Fix, and Sell. This is when you buy the property, fix it up, and then turn around and sell it. When you are doing a quick turn, you must make sure that you buy right. You have to get enough of a discount that you will make money on the deal. You also need to make sure that you control your rehabbing costs. You don’t want all of your profits to be eaten up by extra expenditures that you could have avoided.
When you are determining if this is a property that you want to rehab, you should ask yourself four questions.
Is this a property that would appeal to the majority of the population?
You want to make sure that you are buying a property that will attract buyers. You also want to make sure that you are not going to hold the property very long.
Consider the following:
- Most people want a minimum of three bedrooms. However, you may live in an area that will allow fewer bedrooms or perhaps in an area that requires more bedrooms.
- Two bathrooms, minimum, is another popular criterion.
- You also want to find out what the minimum square footage is for a property as well.
- Find out what other amenities are important in your price range.
Make sure that you have done your market research to know what a popular property is. You should contact your Realtor and ask them what the most popular property is.
Is this property in a price range that most people can afford?
You want to make sure that the majority of the buyers out there can afford your property. If they can’t, you are narrowing down your pool of buyers. Typically, a narrow pool of buyers increases your holding time. Your Realtor should have the market statistics to show you what price ranges sell the most properties. They can also tell you the average days on the market for a particular price range.
Is this home in the right neighborhood for my target audience?
You may find the perfect property, but it is in the wrong area. For example, if you find a family home on a busy street. What is the likelihood that a family will want to live there? They will constantly be worried about their children, and this will make it hard to sell to your demographic. However, if this home is near a school on a quiet road, your target buyers will be thrilled.
You also want to evaluate if the neighborhood is typically renters or owners. You will have a hard time selling a property to a residential buyer if it is surrounded by rental properties. Make sure you research your neighborhood so you can advertise to the right demographic.
When researching, take into consideration:
- What neighborhoods are rental areas?
- What neighborhoods attract the type of buyer you are looking for?
- What kind of buyer typically buys in this area? – First time home buyers? Step up buyers? Upper-class buyers?
Is the floor plan functional? If it isn’t functional, is it fixable?
You will walk into a lot of properties that require “masks” to help with the smell. Remember, that horrible smell is the smell of money. You need to look at the floor plan objectively to see if it will work for your target audience. You are not buying the property for yourself. You are buying for the demographic that we just discussed. There are some great tips and ideas in our Elite Residential Property Rehabbing course that will help you protect yourself from newbie mistakes.
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.