The Three-Bedroom, Two-Bathroom Dream Bargain
Author: boored
Category: Bargain Real Estate
Real estate bargains aren’t limited to splits. There’s everything from repos to tax auctions; from probates to discounted seconds; from “junk” locations to million-dollar “fixers.”
Would you recognize a bargain if you saw it? To help find out, try answering the following question. The way you answer reflects how you visualize what constitutes a bargain in the real estate market.
Question: What does a typical real estate bargain look like? No, it’s not a trick question. But it is an important one.
Most common answers: “The typical real estate bargain is a three-bedroom, two-bathroom house that probably needs paint and minor repairs and is located in a fairly good neighborhood but is selling for way below market price.”
Was your answer something similar? If so, it’s perfectly understandable. This is a bargain that we all can recognize. A good home, a good neighborhood, a little fixing, and a low, low price. It’s a sweet deal that anybody would take in a minute.
But that’s the problem. If we have a good house that’s in a good location and is easy to fix up, why should it sell for way below market price?
This is not to say it couldn’t happen. Seller’s distress might result in a lower price for an immediate sale. However, chances arc that such a house will sell easily enough for market price or perhaps at slightly below market for a very quick sale.
Keep an Open Mind
The point is that if the only bargain you recognize is the dream home we’ve just discussed, you may be waiting a very long time. Even in a market where sellers are everywhere, buyers are few, and prices are falling, choice properties will bring choice prices. Compared with other houses, the ideal “three plus two” will seem high in any market.
On the other hand, if you’re willing to take a more open-minded approach—if you’re willing to look at bargains in the form of terms offered by sellers, properties that need fixing up, or any piece of real estate that you can make a profit on—then you could very likely find a suitable bargain this very week.
Develop a Style
This is not to say that you will always be looking for bargains in a wide variety of types of real estate. Most successful bargain hunters develop a “style.” They find a particular type of property that they can easily understand and work, and then they specifically hunt for it.
However, until you know what your own style is, keep an open mind. Be prepared to look at all types of real estate. Don’t start excluding properties until you’ve made a thorough examination of what’s out there and the benefits they offer you.
“I Wouldn’t Live in That!”
Finally, don’t try to find bargain property based on where you would or would not live. It could be a one-room shack or a fifteen-room mansion, a pizza parlor or a six-unit building Whatever it is, it’s an investment—and probably not your first choice for a personal residence.
If you’re buying stock, you don’t judge the company on the basis of whether or not you would live in the home office. If you’re buying commodities, you don’t judge your purchase on the basis of whether you personally drink orange juice or eat soybeans. Similarly, if you’re buying bargain real estate, don’t judge it on the basis of whether or not you personally would live in it. Rather, look at it in the cold light of profit or loss. Your motivation should be: Can I make money on this property? If you can, consider it. If not, dump it.
Locating Bargain Areas
Now let’s move on to locations. Where are the bargain locations, those areas that have special bargain properties, whether in an up or a down market?
As we’ll see, any area at all can have bargain properties. However, we are frequently looking not only for bargains but for affordable bargains. We want to find something that we have the money to handle. For some of us that may mean bidding on very expensive properties, but for most of us bargain hunting involves looking for less expensive real estate. Nevertheless, chances are that your ideal piece of property is located nearby.
Finding Cheap Properties in Expensive Areas
This is a matter of matching your pocketbook to what’s out there. You may be able to afford a $50,000 house that’s for sale in Phoenix. But what if you live in Los Angeles, where in many suburbs the minimum price is over S300, 000? If you want cheaper real estate, how do you find it?
The answer is that, almost without exception, cheaper (or more expensive} property is nearby regardless of where we live. If you look, you can almost surely find a cheaper or more expensive area in which to hunt. If you don’t believe this, try the following experiment.
Buy Close to Home
Get a map of your local area and a drawing compass. Put one end of the compass on your home’s location on the map and extend the compass so that it draws a circle with a 50-mile radius (if your map’s scale is 1 inch for 10 miles, then open the compass to 5 inches). Anything within that circle is probably not much more than an hour away and is a suitable bargain hunting territory for you. Forget anything outside the circle.
It would be a rare area of the country indeed that did not have a wide variety of property located within a circle with a 25-mile radius. (We are, after all, talking over 1000 square miles.) Even if your residence is located within an area of expensive property, somewhere in some direction no more than 25 miles out you’re likely to find an area with much less expensive property. The opposite also works: You can usually find a much more expensive area than yours within the circle.
Once you’ve found an area that feels comfortable, stake it out. Get to know it. Farm it. Claim it as yours. If you’re going to find bargains there, you’d better know that area better than anyone else does.
How to Get Started Bargain Hunting
I always try to buy real estate that is as close to my home as possible- The reason is that I can be nearby if there are any maintenance or management problems. In any event, the property should be no farther than I can comfortably drive within a half hour or so. (The exception here is that you may know of an excellent property manager in a distant location.) I therefore estimate that what I buy should be no more than about 25 miles from my home.
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