You've found the ideal property you'd like to make an offer on and have to evaluate how much to offer so you get the property at your price, how do you do it?
It is said that Real Estate Investors make their money when they buy the property. For the most part, this is true. If you pay too much, you've just become a long term investor and potentially a landlord waiting for the market to catch up hoping you get positive cash flow on the property. If that was your strategy all along no harm, but if you wanted to resell the property quickly, you may not be able to. This article addresses the steps and items you should consider when evaluating investment properties.
First, you must have an exit strategy in mind and I recommend an alternate exit strategy in case your primary goal doesn't work out. Typical exit strategies are to wholesale the property immediately, rehab the property and resell it, or keep the property and rent it out for cash flow. There are other strategies that incorporate several of these like lease options but the point is to decide what you will do with the property before you own it.
This is how I evaluate deals and make offers.
First, I will only work with a motivated seller that is not currently in pre foreclosure or a bank owned property. I choose not to work the short sales as they are quite labor intensive and take way too long with an uncertain outcome. My local market which is Broward County in South Florida has many such opportunities so that is my target. You need to have a target also.
Second, I only look for properties in what I call "hot zones". I concentrate in areas that have a lot of buy and sell activity. Again, if my exit strategy is to wholesale or rehab, I want to buy in an areas where the buyers are. I also pick price points where the most activity is. Study and understand your local market and what is going on with government programs like first time homebuyer etc. Always buy with your eye on your exit strategy.
Now the research
You need access to historical and current real estate information local to your market. If you are a Realtor you have the MLS and other tools. If not, there are several good websites that you can access to get historical and current information.
You local property appraisers website will give you important information on the subject property including square footage of the living area which is very important when determining price per square foot. To get the comparables you will search for the following.
o Closed Sales preferably within 6 months of today's date