Buying and developing foreclosed properties is becoming a big business. These properties, bought at a premium price, offer the developer a chance to make good money, though only if the planning runs smoothly and the development costs controlled. The way to increase profits is to assess, plan and to execute the development to suit the market within the geographical location of the home. Mistakes are made when a study of the area is not performed, or when the wrong market is aimed for. To increase the potential of profit, it really is wise to study the market and to use the following steps to obtain the best results.
Know the area
When a foreclosed property comes up for sale, look at the area. This tells you a lot about the kind of person who would buy a home in that area. This is vital. It also shows you the competition within that area and it’s worth checking out other real estate to see what the prices are generally like bearing in mind the location. Is the area suited to families with children? Is this a business executive type area? What are the local amenities? This tells you a lot about the area and the kind of people who would live in an area such as this.
The price of the property may look attractive, but what has to be balanced against that price is the cost of refurbishment. Major works can eat into the budget and this is where the majority of mistakes are made when trying to get good turnover from investments. Look at the state of the roof, the stability of the walls, the age of the electrics, plumbing, etc., and do be aware of all major repair costs. Anything which relies upon employing outside contractors is expensive compared with work which the developer is capable of doing themselves.
If there is time before the sale of the property, have a full survey done on the property because often this reveals the type of problems inherent with that property. For the cost of the survey, it’s worth it to avoid any disastrous purchase.
The price plus the repairs will have to fall within the possible price range aimed at, and to show a profit, the repairs will have to be less expensive to make a better profit. That doesn’t mean that repairs should be done cheaply as the public are becoming more fussy about the type of property they are prepared to invest in.
The cost of renovation or refurbishment
This should be estimated in advance. It is this which ties up the property as a stagnant investment until such works are done. Can you afford to tie up the purchase price for a six month period? It’s important to be realistic. Will the property then be for sale at a time when the market is in a lull? Try to tie in your investments and refurbishments so that the house is available on the market when the demand is at its highest, to minimize the amount of dead investment.
Gearing the home to the market available
Family homes within an area where there are good schools and amenities will sell, though it depends upon the approach of the developer. Those who are inexperienced may create a wonderful interior, but may not have thought of the practicalities of family use. Even if the home uses top notch appliances and fitments, if the home isn’t family friendly, no amount of money can make it so after the refurbishment is done. Plan out the rooms, maximize the bedroom and bathroom areas, and make sure that family living space is practical.
For those aiming at an executive market, remember that this may be a market which will give a better return, but remember also that the area in which the home is will determine its suitability as an investment for an executive to buy as a home. Is it an easy commute to work. Are there other young and dynamic people living in the area. The area where the house is situation dictates the kind of market available, and it’s no good trying to sell executive homes on a family orientated housing estate, or a family home in the middle of an executive style area.
Keeping to a timetable
Where money is lost during the refurbishment of a home or development of several homes is delay. Delay means the difference between profit and loss. Schedule the works, and make sure that suppliers can supply all the necessary elements without delay. This planning goes a long way to addressing potential losses. Having workmen on the site without work because supplies have been delayed doesn’t make sense. The timetable of works should be agreed with the workforce, and with suppliers of all materials and fitments used for the house.
The reason for a budget is because this controls the amount spent, and thus helps the developer to make a profit which is predictable. Keep a note of all costs, and if going over budget in some areas, cut backs will have to be made in others. Don’t skimp on essentials, or produce work below local codes. Your reputation depends upon it.
Getting the home ready for sale
Often developers are too keen to offload the property to make it an attractive package. The outside area is messy from the development work, the inside of the house is basic and not presented in its best light. The windows are dirty and the house looks like what it is, i.e. a development site. Before inviting real estate agents to give an indication of the price you will get for the home, remember that first impressions are everything. Stage the home even before the professionals assess the value. The reason for this is that anything sells if the seller believes in the product.
Present a house which is ready for occupation and has been cared for and neatly presented, and the real estate agent is more likely to put a higher value on the home. The cost of staging is minimal when considered against the amount of people it will potentially attract.
Having paid attention to all of the above items, there is the potential to increase profits on the sale of foreclosed properties after development. It takes a savvy investor who knows the property market to assess the area, the home, the market and the potential, but by missing any one of these steps, the consequences may be loss of potential profits. By going through each stage of the development with one view in mind, and sticking to the budget, the property developer stands a much better chance of making a better profit than those who are too short sighted to plan, and develop houses without these precautions.