Buyer Tips ~ Top 5 criteria for buying a profitable house or condo

Excerpted from article by Robert Bruss.

If you want to profit from your home purchase, buy a house or condo needing profitable improvements. Here are my top five criteria:

1. Ask how much the seller paid. Most buyers don’t ask this vital question. The reason you need to know is to discover how much negotiation room the seller has.

2. Ask why the seller is selling. Be sure to communicate to your buyer’s agent, who will then tell the listing agent, “I need to know so my buyer can make a purchase offer that meets the seller’s needs.”

3. Look for “the right things wrong.” This used to be my primary criteria for buying a house or condo at a bargain below-market purchase price. Although this reason is still ultra-important, it is no longer as important as the first two criteria.

• “The right things wrong” mean profit opportunities. Often, all that is needed are a coat of paint and new wall-to-wall carpets. Additional profitable examples include new light fixtures, new appliances, fresh landscaping, and bathroom updating.

• Examples of the “wrong things wrong” or unprofitable improvements include a new roof, foundation repairs, new plumbing or wiring, and new windows. The reason these obviously necessary updates are unprofitable is they add less market value to the home than they cost.

4. Deduct from market value for the cost of repairs. Most sellers of houses and condos are well aware if their home needs repairs or updating to current market value standards. There are two ways for buyers to handle this.

• One is to offer a low purchase price to compensate for the obviously necessary repairs. However, such an approach often upsets the seller who doesn’t realize how much it will cost to bring their home up to neighborhood standards.

• A better approach is to offer close to current market value, based on recent sales prices of nearby comparable houses or condos, but then list and ask for credits for necessary repairs, such as a new roof, foundation repairs, landscaping, and new plumbing or wiring. This method is often more effective because the seller then realizes all the work their “fixer-upper” needs.

5. Ask the seller for affordable financing. Although home mortgage financing is easily available today, you might be able to do better in the right circumstances by asking the seller to carry back a mortgage for you. This can be especially valuable if the seller owns the home free and clear with no mortgage, you plan to immediately renovate the house to increase its market value, and you expect to refinance or sell the home after the improvements are completed.

• To illustrate, if you offer a retiree seller a 5.5 percent interest rate on a carryback mortgage, that’s better for you than is easily available at the local bank. However, be sure there is no prepayment penalty so you can refinance when you complete renovations to increase the home’s market value.

• There is no easier mortgage lender than the home seller. My experience is retirees are especially anxious to finance home sales because they usually can’t obtain such a high yield with the safety of a mortgage on their former residence if you fail to make the payments and they have to foreclose. By obtaining easy seller financing, you just increased your purchase profit even more.

If you ask the right questions, your house or condo purchase can become a profitable investment. Whether you plan to keep your home purchase a short time or for many years, look for the “right things wrong” and the extra bonus profit opportunities, such as seller carryback mortgage financing.

Source: Robert Bruss, naplesnews.com

Use these Buyer Tips, contact Barbara Chartier at 843-902-0204.