The idea of profiting from special situation properties - fixer uppers, probate properties, foreclosure properties, etc. - is appealing to many people. This applies especially to real estate investors and first time homebuyers. While "turning" special situation properties can be profitable, it would
not be correct to say that they are "sure fire" ways to making money. There are many visible, and not so visible, costs and risks that you should be aware of when actively searching for superior investment opportunities.
One of the biggest risks is in the area of both hidden and unexpected expenses. You need to properly estimate the value of both the time and money invested in the project. This includes your time spent both researching potential properties to purchase and organizing/managing the renovations. If you run into unexpected cost overruns, time delays during remodeling or a softening in the real estate market while your renovation is in progress, your profit potential can quickly turn into a loss.
How do special situation properties perform compared to the overall market? As a part of our statistical analysis of MLS listed properties, we track the on-going performance of single family home MLS listings in North Los Angeles County. With our proprietary software, we track specific key words in real estate agent's Listing comments - words such as "Fixer Upper", "Motivated Seller", "Probate", "Foreclosure", etc. Over the past several years, properties marketed with these keywords in the MLS have sold, on average, for anywhere from a discount of 7% to 10% below market to a
premium of as much as 5% above market. During the spring time, the averages tend to float towards a premium to market and often sell faster than the average number of days to sell for L.A. County. During slower market conditions, the averages decline back into the 7%+ discount range.
These statistics suggest that, on average, people are not exercising substantial due diligence in buying special situation properties. They are paying too high a price for properties that need an additional investment of time and materials to make ready for resale. As for future trends in special situation properties, we expect to see discounts move into the 10% to 15% range as the overall market price trend in L.A. County drifts sideways.
If you are seriously interested in finding a special situation property, always work with professionals who can help you earn enough after-tax profits to make your investments worthwhile. With the assistance of our software technology and specialized marketing in the area of non-MLS-listed properties, we can provide you with the highest level of service in finding and buying value-priced properties.
If you have any specific questions regarding special situation properties, simply
send us your request.
