How can you tell that the property you are considering is undervalued? Most seasoned investors and property finders will tell you that the secret lies in the buying price, and not in the advertised price. However, there are a number of other ways to know that you’ve landed on an undervalued property. These include:
- The Ugly Duckling
In real estate, the ugly duckling refers to the worst property on the best neighborhood/street. This means that you need to buy such properties, especially if you are looking to maximize your capital gains in the medium and long terms.
Finding property that is a bit run down is ultimately going to yield great returns on your investment. Therefore, you should look for properties that require some upgrading and updating.
Properties that do not present well tend to come with hampered selling points. It is also amazing how much difference you can make with new cabinetry, paint work, and gardening.
Still, you should make an educated and informed decision when reviewing properties that require some tender loving care. As long as it isn’t damaged, run down, and/or tired, the undervalued property will work out perfectly for you.
- The Seller
Another way to know that you have landed an undervalued property lies in the seller and how motivated they are to get the property off their hands. To gauge their motivation, pay attention to the particular circumstances of the sale – what the seller’s circumstance is, why they are selling, and how fast they need to sell. In general, motivated sellers present fresh opportunities for price negotiation.
Therefore, consider asking pointed questions to glean valuable information. Look for sellers that have already bought elsewhere, are in financial trouble, have lost their job, or recently filed for divorce.
Alternatively, establish mutually-beneficial relationships with selling agents. Then, speak to them on a private level. Of course, you might also want to offer them a deal to buy the property faster and see if they will reveal the seller’s situation.
- The Infrastructure
Most undervalued neighborhoods tend to boom following an increase in amenity and infrastructural spending. New parklands, shopping centers and malls, train lines, and access to amenities tend to increase capital growth and rental yields.
If the property you are eyeing is in a built up area that has been scheduled for development, then your capital growth and rental yields will increase. This will be on account of the potential that the new developments will attract. In the same way, think about investing in light industrial areas where the local government plans to rezone or which has already been rezoned.
Locations that were gentrified recently are sometimes difficult to value. If the property you are considering has unique flavor, architectural significance, and in a league of its own, you might find it difficult to value it. However, if you have done your research and have the funds to cover shortfalls arising from the valuation being low, then you should be able to reap big on that property.
- The Numbers
One of the best ways to locate undervalued properties revolves around knowing the local market. To this end, you should use all the data you can get, review it, and make an informed decision to buy or not to.
When considering making a purchase, find out the price at which other similar properties in the area sold for. Then, assess the local median price to better judge your expectations. You can also find out more about the local numbers by answering the questions below:
– How long does a property last on the market?
– What are the capital growth levels in the area?
– What are the median rents and gross rental yields?
– What was the average discount provided to vendors?
Answering these questions will improve your ability to target the best, most undervalued properties. It will also make you better informed so that you can improve your property investment game.
- The Development
Last but not least, the best way to know that you have landed on an undervalued property is to buy into a new development some time after it has been completed. To this end, search for properties that have been put up for sale 2 to 10 years after they were completed.
So, there you have it – the best tactics to adopt to ensure that the property you wish to buy is undervalued. Remember the golden rule of real estate investing: buy at a minimum, sell at a maximum and reap the rewards!