Bet you haven’t looked at the new property development reality TV shows from this angle? I must admit it’s quite entertaining watching complete beginners making a hash of property development. Self proclaimed entrepreneurs looking for that property tycoon lifestyle, without really having done much, if any research into any kind of property investment.
I suspect that the reason they appear to make money is because one or two “trivial” expenses are dropped from the balance sheet. For instance, I’m sure the new developers weren’t gifted their fixer-upper from the property fairy, how much the repayments on their mortgage or loan cost, surely there are federal and state taxes to pay. Or were they given a free property through some tax liens. One last point while I’m on my soap box – assuming the “contestants” still have a job, did they take unpaid leave?
Perhaps I’m getting too involved. It is only a TV program after all!
Getting back to reality for a second, what’s really required to profit from property development, whether through tax lien certificates?
It’s imperative that you know that math before buying that “too good to be true” fixer upper. Look at every project logically, not emotionally. Take a trip round the local estate agents. Ask questions. Get online. Get an average price for similar properties in the area? If you don’t what you can sell for, you’ll never know if you can make a profit. Regardless of how much you love a property, if there’s no money to be made, leave it alone. There’ll always be others.
The next hurdle is getting to grips with the costs of restoring the place which could very quickly escalate if you’re not careful, particularly with the usual tax lien properties. When first getting started, so many people underestimate the costs and timescales involved. You cannot always get builders just when you want them, and often, applying for planning permission if necessary, can add several months to a project. Not to mention the fees charged by local government for even applying for these permissions. You also mustn’t forget the costs of buying the property (agent fees etc) and the cost of arranging the finance (legal fees etc). As a property owner you become liable for taxes, service charges, ground rent, utilities and the like. Seems like everybody is after a slice of your pie. These charges continue right up to the day you complete your sale.
As well as everything else, you have the added “bonus” of instability in housing proces. Even the most beautifully renovated houses are affected by changes in the market. House prices can drop pretty dramatically.
Before you decide to buy a place you have to be ready for the eventuality that it doesn’t sell for several months. Have you got enough funds to tide you over if you are unable to sell the property? We all have had places sit empty and idle for too long for comfort. If there are no buyers, there’s nothing you can do about it. It’s down to waiting it out. Sometimes you just have to hang in there until the right buyer happens along.
First Steps First
You could start by identifying new estates with money flowing into them. This is an easy job. Look for the money. Expensive and/or new cars. Well kept gardens. Houses that “look the part”. Take the dog for a walk round your target area one evening. Do you see lots of new and late registration cars? A good sign if you do.
Another way to find an upcoming area is next door to “the last big thing”. Money attracts money so look if popular areas are expanding. For instance, when Holland Park, got too expensive for most people, buyers started looking in surrounding zip codes, all backing onto Holland Park.
