What’s a “Good” Deal in Real Estate? Here are 4 Criteria to Consider to make sure you are getting a great deal.
So, you can debate what a good deal is all day or you can say this~ A good deal is a deal that meets your criteria and that is purchased at a discount relative to other properties with similar characteristics in your local market. That’s it.
In today’s market, we suspect that the challenge for most buyers is in defining their criteria, then setting up a system for previewing a real deal that meets their criteria at a price lower than the average price of other properties with similar characteristics in their local markets. With prices changing more frequent now, we need to set alerts and be vigilant for these types or properties.
To keep things simple, we will stick to four criteria. These are:
- Location
- Property Type
- Condition
- Comps
Location, Location, Location
Location, consists of a three-part decision. You need to decide on a market, specific neighborhoods within that market, and then which hyper-local factors will influence your buying decision.
Picking a Market
In picking a market, you want to look for two different things: (1) The factors impacting supply and demand, and (2) proximity.
Property Type
There are a handful of property types that apply to investors. You need to pick one:
- Single family residence
- Condo
- Townhome
- Vacation home
- Duplex/Multifamily
These reason that most buyers are interested in these types of properties is the access to financing. It is relatively easy for an ordinary American earning $50,000 to $200,000 per year and working a full-time job to get a loan on a property. One can get a 30-year fixed-rate mortgage insured by Fannie Mae on these properties.
A fixed-rate 30-year mortgage is a huge advantage for a buyer today.
Condition
Most first-time home buyers purchase “habitable” properties. This is a good way to get into a property at a lower price with the goal of fixing it up over time. Having every feature is great but does come with a higher price. Fact is, it is still relatively easy to get a great loan to purchase a “habitable” property with a 30-year or 15-year low fixed interest rate.
“Habitable” comprises a range anywhere from “pristine” to “needs TLC.” A TLC property might need a quick paint job and a cleanup, or it might be dated and need a some deeper work done.
It’s up to you to decide where in that spectrum you want to hit your sweet spot.
Comps
Once you’ve chosen a location, describe the property type and condition of property that you are looking to buy, it’s time to determine what properties with those criteria are currently selling for in your local market.
For example, your research might lead you to believe that 3-bed/2-bath houses that sell for $450,000 in certain neighborhoods in your market are going to be your best bet. Well, now you need to have a clear understanding of how those properties are priced.
If the average of these properties is $425,000 and you buy for $450,000, then you probably aren’t getting a “good” deal.
A great way to get comfortable with comps is to ask your agent for a list of all of the properties that have sold in your target market in the past 180 days. Many buyers look at active listings that are currently for sale. This can be disheartening and give a distorted view of whats really selling.
Active listings today tend to be overpriced. Further, a property priced below the average of others with similar characteristics is not going to sit on the market for a long time in most cases.
By looking at properties that have actually sold, you will be able to see what the best deals are selling for, rather than risk looking at potentially the worst.
After reviewing and analyzing several properties that have actually sold in your market in the past 180 days, you will likely begin to feel very confident with your analysis. When a good deal actually does come on the market for sale, you will be able to confidently pull the trigger and make a competitive offer.
If you would like to get comps or see a list of recent price drops around the market, contact us and request listing and sold data.