Finding the right property

The key to making money in real estate and to be able to move up quickly on the property ladder is to invest in the right properties. Properties that doesn’t look or display very well but that can be turned into gems with a modest amount of work. The more upside a property have the more work and money you can put into it.

You should always refrain from getting tempted to buy a property that is out of your price range no matter how much potential it has.

If you don’t have the resources to finish a property within a decent time span  you should avoid investing in it regardless of how much potential it has. Getting stuck in the middle of a renovation of a large property is one of the biggest risk that faces anyone trying to climb the property ladder. It will cause your capital to be tied into a property that you cant sell. This will prevent you from moving on to other projects and will effectively kill your climb on the property ladder. At least until such time as you can finish the project.

During the time you are locked into the property you could have finished and flipped several smaller project earning you more money and subjecting you to less stress. There is only one time you should risk getting tied down into an overly ambitious project and that is when the project is your dream house. Your final step on the property ladder.

In this case it doesn’t matter if you get tied down into the property because the property is your goal, your end station.

When you are looking for a property to flip you should already be aware of your budget and how much of that you can spend on the house. You should always save a part of your budget for the renovations. You will need to buy materials even if you use sweat equity to do the renovation.

You should, as we earlier mentioned, look for a property that looks ugly but is easy to fix and avoid properties that have severe problems that cost a lot of money to fix. The same is true if you are looking for an income property. You should among other things try to avoid houses with:

• Moisture damage unless you can asses the scale of the damage and can see that it is an easy fix. Moisture and leaks scare people so houses with easily fixed moisture damage can be some of the best  investments.
• Knob-and-tube wiring: Knob-and-tube wiring is a big fire hazard and is illegal. If it runs through the entire house it can be very expensive to replace it. Many areas do not allow you to change it yourself which will force you to hire an electrician. Fixing a problem like this can cost several 1000s. Knob-and-tube wiring is a more common problem in the Americas than it is in Europe and is only found in old buildings.
• Buildings with cracks in the foundation.
• Building with carpenter ants (domestic) or termites (if you are climbing the ladder abroad)
• Asbestos
• Illegal extensions: Can be very profitable purchases if you can get the extension approved but is very risky. Avoid unless you can afford to be forced to knock down the illegal extension.
• Weird floor plans that are not easily changed. Knocking down a wall can be easy but moving bathroom and kitchen quickly becomes expensive.
• Houses in declining neighborhoods. It is very good to invest in up and coming neighborhoods. It can be very dangerous to invest in areas that are in rapid decline.

These are just some examples of things you should avoid. There are a number of other  things that you should avoid well. In general you should avoid any property that require expensive renovations.

It is impossible to be 100% certain that a property doesn’t contain an unpleasant surprises. You should however do everything you can to try to avoid suprises. Inspect the house carefully and consider getting a professional inspection before buying an property.

We also recommend talking to the neighbors. They can often tell you if there are any secrets the seller does not want you to know. I recommend asking not only about the house you are planning to buy but also about other houses on the street. Information about problems that has occurred in other houses on the street can give you valuable information about what you should pay articular attention to in the house.

We recommend that you read a number of books about investing in real estate before you buy your first investment property. We also recommend that you watch shows such as Property Ladder, Property: Snakes and ladders, and income property. All these shows can learn you a lot about real estate investment. By watching the shows on TV you learn to recognize some red flags since you have seen them on TV and know what to look for.