PART TWO: So You Think You’re Ready to Buy a Home or Investment Property… How Do You Reduce the Risk of Making a Big Mistake?

The blog entry below is Part Two of the discussion started on July 10, 2012...

So you have access to the MLS data. What should you be looking for? There are things that will be obvious from the data, and things that will be implied. How many active listings are there in a community? How many REO’s (bank-owned properties– scroll back to an earlier edition of this blog) or short sales (scroll back to the February edition of this blog) are actively listed for sale in the community? If there are more than two REO’s and one or two short sales, values have probably not finished dropping in that community.

I generally look back six months at SOLD comps. And, again, be sure you know what you are doing when you assemble your “comps.” (Scroll back to the August 31 edition of this blog: “When performing property analysis, make sure to compare apples with apples.”) This will tell you how active sales are in a community… whether prices are still trending downward or have begun to stabilize… what sort of offer should we make? In this market, unless there is some extraordinary explanation for the lowest comparable sale price (e.g. sale to a relative), I suggest an offer below the lowest sold comp in the last six months. And, depending on the myriad of other factors, I might suggest an offer well below the lowest sold comp to make sure we have some “room” for further declines in value or for periods of vacancy in the case of investor properties.

With respect to investor properties, the MLS will allow us to see what homes or condos are currently available for rent in a particular community, what price they are offered for, what properties are currently leased, how long they were available before they were leased and what the current lease price is. There is no guarantee that your investment will lease within a certain time frame, but the historical data in the MLS system can certainly give you some solid insight into this.

Solid analysis identifies great opportunities– and can avoid big mistakes. We are currently experiencing the best “buyer’s market” in a generation or more. Anyone who is able to take advantage of it would be very wise to do so. But, for the uninformed or poorly advised, what might appear to be a good opportunity can become a costly error. As with most things in life, there is no way to eliminate risk completely.  But sound research and thorough preparation can go a long way toward limiting that risk… and toward finding one of the many great opportunities that still exist in this market.   You can start doing your research on my web site: http://www.EricDorerRealEstate.com.  And when you are ready to get a bit more serious, let me know.  I would be very happy to personally assist you.