Thursday, July 18, 2013

The "X", "Y", and "Z" factors of Qualifying a Real Estate Purchase

The "X", "Y", and "Z" factors of Qualifying a Real Estate Purchase    

   When identifying Real Estate to purchase, qualifying the prospective property within parameters will aid the purchaser in preparing for the right offer, and hopefully further increase the chances of creating a successful purchase. There are 3 important factors which I like to consider before crafting an offer to purchase. The following thoughts are a glimpse into my strategic thinking and are intended for your insight and enjoyment. With no further a due, 

3 Important Factors in Qualifying a Real Estate purchase

    The "X" factor: Price. For the love of $$. Price is a crucial element in determining whether or not to purchase a piece of real estate. Price, one generally might assume is the most important factor. I've heard someone say before, "If the price is low enough, any house is a good deal!"
     I will actually object to that notion, and I'll tell you why. Having been in the real estate business for some-time now, I have actually seen houses in which other over-riding factors, (we'll discuss momentarily) were so marginal, that I wouldn't have the house, if you were to sign the deed over to me for $1. Literally. So, while price is a very important moniker, it is far from the only factor to consider.

     The "Y" factor: Condition. So fresh and so clean, clean. The condition of a property has very much to do with whether or not it will be a wise and safe investment. The condition of the property is going to affect various aspects from the value of the property, to the maintenance and upkeep cost; not to mention the amount of revenue which could be generated from its highest and best use. This rings true with farm property, (gentle rolling or flat land with plush soil is better than rocky ground with slopes), a single family home (the amount of money which will have to be invested post-closing), and an investment property, (the amount of rent it might garner). In the recent real-estate bubble bust foreclosures hit an all-time high in this country. According to data from Core Logic supplied by NAR magazine, since the beginning of the financial crisis, there have been approximately 4.4 million filings.  Many of these properties are available at discount prices. The property's condition will determine the overall investment needed to bring the property to its maximum market potential.

     The "Z" factor: Location, Location, Location. Think about playing Monopoly. The most desirable properties on the board are the Orange Properties:  St. James Place, Tennessee Avenue, and New York Avenue. This is because statistically, those properties have the highest probability of being landed on, hence their location. Location has a great impact on a property's value and is the one thing that can't be negotiated or changed. Homes located in desirable neighborhoods and convenient to a good school system are customarily more valuable than homes in distressed neighborhoods, or in neighborhoods zoned within under preforming school districts. With regard to commercial property, high traffic counts on the main thorough-fare typically command a higher market price than do properties off the main road, or hidden away from the primary traffic route. There is no substitute for a desirable location. Arguably, the most important factor.

Tying it all together- Integrating Price, Condition and Location.

     All of the above mentioned factors are important in qualifying future real estate acquisitions. Price, Condition, and Location are all inter-related factors which are going to determine how much a buyer is going to invest in the property. I like weighing all three factors in the balance to establish a market value. When all three dynamics are in order: a property is offered at a good price, in good condition, in a good location, the stars are aligned- it's like a jackpot on a slot machine.
     Typically, those deals don't last long. They never seem to be available when the mainstream buyer is in the market. The stars really have to align. In reality, most situations lend themselves to 1, or possibly 2 of the factors being really enticing, compromise needed in the other category(s), then having to weigh it all in the balance to decide whether or not it will be a safe and enjoyable investment.
     If the price of a property is priced low enough, and in a fair location, it might be a rational assumption that the home might be in less than updated condition and/or repairs needed. On the contrary, if a property is located in a desirable enough area, it is reasonable (for me anyway) to assume that a negotiable price (more favorable to the seller) might be expected or required for a successful buy; even if the property is not in the greatest of condition. Adversely, a less than desirable location can cause the opposite effect on price; no matter how excellent the condition, or how low the price. Location, Location, Location.
    It is important to remember that each deal will have unique elements which will determine its legitimacy. A purchaser's goals and needs will always be foremost in determining value: What's it worth to you? When considering your next real estate purchase, make sure you conduct your own independent research and have your real estate agent conduct a CMA Comparable Market Analysis of sold, pending, and active properties similar to the one which you are prospecting. Apply what you know and ask your real estate professionals input and advice on the "X", "Y", and "Z" factors; price, condition, and location of the property before deciding on whether or not; and what; if so, to offer. Thank you again for visiting my blog. I hope the ideas above are helpful to you when considering your next purchase.

Sincerely,

Bradley V. Arnold

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