What do investors look for?

John Adams
Published: Yesterday

Last week we saw that some 35 percent of home sales during the past year were bank-owned foreclosures or government-owned resales. That is a huge increase from just a few years ago, when sales of these homes were not a significant part of the Atlanta market. Two factors cause these homes to sell at dramatic discounts:

● Lenders and government agencies are charged with disposal of these properties regardless of price. They do not have the luxury of waiting until the market improves; and

● These sellers have a policy of selling the properties in “as-is” condition, meaning no repairs and no disclosure statements. The buyer takes all the risk. The only potential buyers are investors looking for a bargain.

So, what are the specific characteristics investors look for in today’s market? There are many, but the main three are:

This is the most important part of the equation. The acquisition price needs to be low enough to cover all needed repairs, carrying costs, marketing expenses and still represent a bargain to the end consumer.

The price paid for the acquisition is critical to all later profitability. In the case of Atlanta’s post-foreclosure marketplace, investors have found a “market bottom.” Almost anything will sell very quickly if it is offered in the $30,000 to $40,000 range. Furthermore, the market is getting hotter.

While the uninitiated might think that the level of repairs necessary would be the most important consideration of an investor, such is not the case. Instead, price conquers all. Sometimes the best deals require cash for major systems as well as structural repairs.

That said, every investor hopes to minimize capital outlays for the rehab. Smart investors are experts at estimating overall repair costs.

Investors always look for pride of ownership in the neighborhood. Graffiti, junk cars, “boarded-up” or vacant homes are all indications of problems in the neighborhood. Wise investors try to avoid these signs.

The good news is that Atlanta’s investor community is working hard to absorb this glut of bank-owned homes. The question no one can answer is when the supply of these homes will begin to decline.

John Adams is a broker and investor. He answers real estate questions on radio station WGKA (920 AM) every Saturday at noon. For more real estate information, visit www.money99.com.

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