Thursday, August 9, 2007

Ready To Buy?.......... OK, Now What?

PART 1 OF 3

You're ready to buy, you know what kind of property you want, your credit is good (or you have substantial reserves), and you've been pre-approved by your lender. So what's next? Remember, LOCATION, LOCATION, LOCATION is important, but there's a twist on that. Most novice investors do not have the capital to buy property in a prime location like the beach or a hillside home with a view. "Value" can be a great substitute if your location choices can't be top notch. When I use the term "value", I'm referring to the price per square foot I'm paying for the property. This is an extremely important investor measure which when used properly can help you determine whether you are paying below market value, at market value, or above market value.

Using the price per square foot measure to determine value is very easy. You take the price of the property and divide it by the livable square footage. FOR EXAMPLE: Home #1 is a 3 bedroom 2 bath home selling for $200,000. The home has 1,700 Square Feet. Home #2 has the same # of bedrooms and baths and is selling for 150,000 measuring 980 Sq. ft. Which is the better value assuming the neighborhood is the same, and the condition of the homes is identical? Well, using the the fore mentioned formula, House #1 is the better value because it is selling for $117.65 a square foot, and house #2 is selling for $153.06 a square foot.

As you can see, a cheaper selling price does not always relate to the home's value when compared to other homes in the same neighborhood. Part of buying your first investment property will involve getting a Comparative Market Analysis (CMA) on the homes that are selling in the location of your choice. This will help you make a more informed decision. Sites Like http://www.zillow.com can show you the values of homes around the property you're interested in.