How to Evaluate a Northridge Real Estate Deal
After months of searching, you finally have it: a deal on a Northridge real estate investment property you’re dying to buy. But now that you have the deal, how do you know if it’s any good?
If you know how to read a deal, you’ll be able to make smarter investment choices. Here is our quick guide on how to evaluate a Northridge real estate deal.
Check the Financing
Even though you have the deal, don’t look at it just yet. Instead, look through your finances and refresh your memory. Exactly what can you afford? What is too much over the limit?
You should also go back over your lending agreements. Will you have a hard money lenders or a lender financing? Hard money lenders usually have higher interest rates and fees, but your down payments are lower and (in theory) you would pay back your loan as quickly as possible. Lender financing is the more traditional route, usually with a bigger down payment.
Knowing how much you have will prepare you for dealing with price as well as closing costs and other expenses.
Evaluate the Property
Now that you know what you can spend, start looking over the property, starting with the price. The price should be an indicator of how long the house has been sitting on the market and what kind of seller you’re working with. Northridge properties that have been sitting are usually less expensive and their owners are willing to negotiate. If the seller is motivated, he or she may include discounts as well as other perks.
Now take that property and compare it with the comps in the same area. How does it stack up? If it’s more expensive, look for reasons why. If it’s cheaper, you should still look for answers.
If it helps, use a property evaluation checklist to make sure you don’t miss anything when evaluating the property.
What Expenses Do You See
No matter if you’re planning to rent the property or flip it, you need to take any repairs or upgrades into account. This could be anything from repainting the home or replacing an old heater, anything that will cost you extra money after the sale.
You need to be certain that your repair costs won’t rise above what the home is actually worth. Knowing the market and which repairs have the best return rate will be key here. Remember, an expensive upgrade doesn’t mean you’ll recoup your money.
Add up the estimated cost on repairs once you’ve gone through the property once more.
Final Income/Profit
Once you’ve determined how much you’ll spend on repairs, it’s time to look at the whole picture. In order to profit when you resell, your purchase price and repair costs must be significantly lower than your selling price.
Of course, you can’t know your resell price just yet, but you can make a good guess. Go back to the comps and look for properties you want to copy. What are they selling for? Use one of them in your equation to help you guess, but remember that those prices can change in a few months.
If your rehab budget and purchase price go far above what any home in the area is selling for, then you need to either drop the deal or negotiate. You won’t be able to get your return.
Above all, never push yourself into a deal you don’t fully understand. Keep these tips in mind when you’re evaluating a Northridge real estate deal and make the better investment decisions.