Finding a property priced below expectations can feel like striking gold. The listing looks attractive, the numbers seem promising and the temptation to move quickly can be strong.
But in real estate investing, excitement can be expensive.
In Successful Real Estate Investing, James H. Boykin repeatedly encourages investors to slow down, investigate the facts and resist the urge to confuse a low price with a good investment. A property may look like a bargain at first glance and still become a financial headache once repairs, location problems, operating costs or financing realities are taken into account.
Cheap Does Not Automatically Mean Valuable
One of the biggest mistakes an investor can make is assuming that a discounted property must be a good deal.
Boykin warns that a cheaply built, poorly designed or badly located property may remain difficult to sell even if it is purchased below market. A so-called “handyman special” can also require so much renovation that the investor ends up spending more than the finished property is worth.
That changes the question investors should ask.
Instead of asking, “How cheap is this property?” they should ask, “What will this property really cost me by the time it is ready to produce income or sell?”
That calculation should include acquisition costs, repairs, upgrades, financing, taxes, insurance, vacancies, maintenance and other operating expenses.
Inspect Before You Celebrate
A property can hide expensive problems behind fresh paint or an attractive listing.
Boykin strongly recommends professional inspections and cautions investors against trying to save money in this part of the process. Structural damage, outdated electrical systems, plumbing problems, roofing issues, HVAC failures, environmental hazards and foundation concerns can dramatically change the economics of a deal.
He also emphasizes obtaining reliable estimates for necessary repairs before committing to a purchase. If the purchase price plus renovation costs leaves only a small profit margin, walking away may be the smarter decision.
Sometimes the greatest return comes from avoiding the wrong property.
Location Problems Are Harder to Fix
Many physical defects can be repaired. A worn kitchen can be updated. Old flooring can be replaced. Landscaping can be improved.
A bad location is different.
Boykin stresses that an unappealing, unsafe, declining or remote neighborhood can be extremely difficult, if not impossible, for an investor to overcome. He identifies location, timing and skilled management as three major factors in successful real estate ownership.
That means a heavily discounted property in the wrong neighborhood may still be overpriced from an investment perspective.
Run the Real Numbers
Investors should also be skeptical of optimistic financial projections.
A seller may claim rents could be higher or expenses could be lower, but Boykin recommends examining actual operating information and including realistic vacancies, reserves, repairs and replacement costs in the analysis.
If the deal only works when every assumption is optimistic, it may not be a strong deal at all.
A Great Deal Should Survive Investigation
Successful Real Estate Investing by James H. Boykin presents a disciplined approach to property investing built around research, financial analysis, risk awareness, negotiation and sound management.
The lesson is simple: enthusiasm should come after due diligence, not before it.
A genuine real estate opportunity should still look attractive after the property has been inspected, the numbers have been challenged, the neighborhood has been studied and the risks have been identified.
Until then, it is not a great deal.
It is only a possibility.
Discover more practical real estate investing guidance in Successful Real Estate Investing by James H. Boykin.
Read the book on Amazon: https://a.co/d/0gjvN7zf
