Finding Solid Ground

Spotting investment opportunities in a tough real estate market.

Zeigler still says that because he devised a clear investment strategy from the outset—to buy and hold—he’s less affected by the turbulence in the current housing market. Declining values don’t concern him, for example, because he doesn’t plan on selling his properties anytime soon.He can also pass along any extra costs to his tenants. If an adjustable rate mortgage was about to reset, sending his monthly mortgage payment higher, he could at some point raise his tenants’ rent, Zeigler says.

Evaluating a Deal
Still, experts say there are many factors involved when determining if an investment property is a good deal.Do extensive comparable research so you know what similar homes are commanding in that area. (Areal estate agent or an appraiser can do this for a small fee, which experts say is worthwhile since it’s currently hard to ascertain value with so many foreclosures.) You also need to evaluate the neighborhood; you can do that by driving around the area at night to get a feel if families with children would want to live there. Check out foreclosure rates, along with job growth in the city, to gauge how those rates could continue to affect the area.

“I try to find areas that are planning to build a SuperWal-Mart, because [the company] only puts up those properties in areas of growth,” says author Kyle-DeBose. “You want to get in front of the growth.”

You also have to factor in the rental market, because maintaining a high occupancy rate is key to a successful investment. Look through the newspaper to find out about rents of various types of apartments. Some real estate agents suggest calling up existing landlords with units for rent to see what they’re asking. Some investors have a formula for determining if they’ve stumbled across a good buy. “I call it the ‘MAO’—the maximum allowable offer,” says Elliott,who runs the Atlanta real estate investment club. “I look at acquisition costs, renovation costs, plus 15% to 20% of the purchase price for holding costs. You add all that together and that will give you the maximum allowable offer to make. If you pay over and above that, you won’t get a sufficient return on investment.”

Entering the Foreclosure Market

One of the most popular ways to find a deal is through the foreclosure market, which you can tap into at several points.One is the pre-foreclosure stage,when the owner still has the property but has missed a few mortgage payments.This situation can be uncovered through public notices about homes in default and through various Websites. RealtyTrac, for instance charges users $49.95 for information on properties in all three stages of foreclosure: the initial notice of default, the notice of an upcoming trustee sale or sheriff ’s sale, and the notice of bank repossession. But this is a competitive space—it’s not unusual for homeowners to get multiple letters, flyers, postcards, and even door-hangers on a daily basis while their properties are in foreclosure, says Rick Sharga, senior vice president of marketing for RealtyTrac Inc.

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