Real Estate Investors are Investigators
Being an Investor Means Being an Investigator
By Mich Christensen
Why do we need to investigate properties when investing?
For the investor to choose a property wisely, he must find out everything about who owns the property, the history, and what is happening to the property. In anything we do in life there is a process—a procedure, a logical reason, and a methodology to accomplish our goals. Just as you follow a recipe for consistency in the kitchen, there is also an optimum plan when investing in property.
Organize yourself—give yourself the best opportunity to do your best!
When you have all your ducks in a row, you can go through the steps quickly and efficiently, without having to spin your wheels. Why re-invent the wheel when it is already there, right? So now, what do we do?
First, you need to ask yourself these questions: What am I looking for, where am I looking, and when will I do this? Obviously, you will need to manage your time, meaning you will set aside time to do your work. Then, you will take that time to determine what area to search in, what type of properties you seek, and how you will find them.
In the meantime, you need to put your Power Team in place and find your inner circle team members. They may consist of a title company or attorney to close your deals, a mortgage broker or bank to finance the deals, and a real estate agent to work along with you. You may require a CPA to do your books and taxes, a general contractor or handyman to do repairs or rehab, and an insurance company if you own rental properties. You may also need a surveyor or an appraiser. As your business grows, so does your team. Once all are in place… then we start having fun!
The Game Plan
1) Locate the properties. As we discussed in the August issue, we need to find our “farming areas,” the geographic areas we plan to work or farm for properties. Once we find the areas we want to work in, we determine which properties we want to go after, and whether we are cherry-picking or going for quantity.
2) Investigate. Look at the properties—determine how they are situated, what is happening in those particular areas, and what is planned, if anything, for those areas. What is the condition of the other properties in the vicinity?
3) Determine what repairs are needed. Eyeball the outside. Take a look at what type and how much work the yard and buildings need. Does it require landscaping, cleaning up, paint, roof repairs, or more? Is this property in need of only cosmetic repair? Or, does it need a significant “face lift” with minor or major rehab? Is this house obsolete because it is too small? For instance, a property could have only one bath and two bedrooms in an area with homes that have three or more bedrooms and two baths. These are questions you want to ask yourself.
4) Get the ownership information. Now the real fun begins—it’s time to get down to the nitty-gritty. We obtain the information on who owns the properties and write it down. We may keep a spread sheet on all the properties we locate, thus we have instant access to the data we have collected.
5) Look at the history. How long have the owners had this property, and what type of deed or mortgage(s) do they have? Who did they buy it from, and when did they buy it? Who is on the deed or mortgage(s)? Are they the same names? If not, we might want to find out why, and what the relationship is. There are several reasons why only one name might be on one document and two or more names on another document.
6) Are there judgments or liens on this property? Each county accesses its records differently. If it is modernized, the records will be computerized and that makes our job easier. However, if it is an antiquated system, we may have to look it up in the big black book. Be aware that in some counties, the regular judgments and liens may be in a black book, and federal judgments or liens in a red book. Make sure you ask in advance so that you don’t miss anything!
7) What is this property assessed at? What are the taxes on this property and where can we reach the owners? Remember, the tax-assessed value is not necessarily the fair market value. The county must assess a value to properties via a formula, and this may include any type of exemption, such as a homestead, a greenbelt/farming, or widow/widower exemption. Just remember each state has its own types of exemptions.
8) What are the comps in the area? The word “comps” is a short way of saying comparables. We need to find and compare similar properties that have sold in the last 12 months. This gives us an indication as to what the market is doing. For a fluctuating market (going up or down), although we may pull comps for the last 12 months, the last six to eight months give us a true picture of what is happening now.
These are the questions, and you need the answers. Thus, you become the investigator, and investigating leads to sound investing.
Mich Christensen is a real estate coach for Wealth Intelligence Academy®.