As real estate prices continue to rise, finding well-priced investment opportunities might seem difficult. However, experienced investors who know how to find undervalued properties know that plenty of hidden gems are still waiting to be discovered in today’s markets. Many properties with substantial renovation needs are often overlooked by consumers and undervalued by homeowners. Undervalued properties are sold for significantly less than their actual worth because homeowners don’t understand their true value or potential, and just want a quick sale.
Knowing how to spot undervalued properties for sale in local markets can be a game-changer for investors–especially in today’s markets. Whether it’s keeping up with town and city developments, pinpointing up-and-coming markets, or identifying emerging neighborhood trends, there are several ways to identify and capitalize on an undervalued property.
In this article, we’ll discuss the qualities and circumstances that create undervalued properties and explain the strategies and techniques necessary to find real estate deals in today’s real estate landscape.
Knowing how to spot undervalued properties for sale in local markets can be a game-changer for investors–especially in today’s markets. Whether it’s keeping up with town and city developments, pinpointing up-and-coming markets, or identifying emerging neighborhood trends, there are several ways to identify and capitalize on an undervalued property.
In this article, we’ll discuss the qualities and circumstances that create undervalued properties and explain the strategies and techniques necessary to find real estate deals in today’s real estate landscape.
What Makes an Undervalued Property
Undervalued properties come in all shapes, sizes, and circumstances. Identifying the characteristics that make a property undervalued is the first step in finding investment properties for sale that others may overlook.
Let’s look at some key indicators to watch for when learning how to find undervalued properties:
Let’s look at some key indicators to watch for when learning how to find undervalued properties:
Properties with Significant Damages
Not all flipping projects are created equal, and not all rehabs are worth the hassle. However, experienced investors can differentiate red flags from possibilities and know what to look for when shopping for houses. In many cases, profitable and high ROI projects are often overlooked because other investors don’t realize the potential or don’t want to deal with the project itself.
Many home flippers also fail to consider alternative investment strategies, like tear-down and rebuild projects or property conversions.
Although there is a slight learning curve when transitioning from property rehabs to new builds, if a significantly undervalued property is located in an up-and-coming neighborhood or metropolis and offers a substantial upside, the transition may be worth the hassle!
Additionally, many properties with significant renovation needs provide a unique conversion opportunity. With many states minimizing restrictions on multi-family and accessory dwelling units (ADUs), it may be financially beneficial to find and convert single-family homes into long-term multi-unit properties.
Many home flippers also fail to consider alternative investment strategies, like tear-down and rebuild projects or property conversions.
Although there is a slight learning curve when transitioning from property rehabs to new builds, if a significantly undervalued property is located in an up-and-coming neighborhood or metropolis and offers a substantial upside, the transition may be worth the hassle!
Additionally, many properties with significant renovation needs provide a unique conversion opportunity. With many states minimizing restrictions on multi-family and accessory dwelling units (ADUs), it may be financially beneficial to find and convert single-family homes into long-term multi-unit properties.
Distressed Properties
Distressed properties face financial or legal challenges. Such circumstances create an opportunity for buying undervalued properties at a discount.
While shopping, keep an eye out for the following properties:
While shopping, keep an eye out for the following properties:
- Tax Delinquencies: Properties up for auction or for sale by the county or state for unpaid taxes are often sold at a significant discount.
- Liens: There are many types of liens. Homes may become property liens because the owner neglected to pay federal taxes, HOA dues, or contractor fees. Owners in financial trouble are more willing to sell quickly and at a discounted price.
- Code Violations: Code violations, like uncut grass, can signal that a homeowner is renting the property and it is either vacant or has tenants that aren’t keeping up with requirements. In many cases, inquiring about a mismanaged property can lead to discounted sales.
- Pre-Foreclosure: Homeowners facing foreclosure may be motivated to sell quickly, at below-market prices, to avoid damaging their credit.
Off-Market Properties
Some of the best investment opportunities and undervalued properties never even make it to market. Homes sold prior to making it on the MLS often sell for less than their market value and help investors avoid bidding wars with consumers and other investors. Partnering with and forming a dream team of local real estate professionals, like real estate agents, contractors, home inspectors, and private lenders, is a great way to find off-market opportunities before other investors have the chance.
How to Find Undervalued Properties
Now that we know what an undervalued property looks like, let’s discuss how to find highly profitable, overlooked properties. Unfortunately, there’s no secret code or pill investors take to gain access to the best investment opportunities. It simply requires market research and strategy.
Market Research
To uncover undervalued properties, you must research local markets to determine average home costs, appreciation rates, and market growth and potential. Luckily, most of this information is readily available online. Investors can use online marketplaces like Zillow and Redfin to identify local properties for sale and compare them to other properties in the area.
Comparative market analysis (CMA) and sales comparison analysis (SCA) reports can be found online. These reports can help investors compare undervalued properties with similar, recently sold properties to determine a home’s after-repair-value (ARV).
Comparative market analysis (CMA) and sales comparison analysis (SCA) reports can be found online. These reports can help investors compare undervalued properties with similar, recently sold properties to determine a home’s after-repair-value (ARV).
Location
Researching the market doesn’t mean simply shopping for properties. Nothing will influence an investment’s ROI potential more than its location, which is why so many undervalued properties for sale in prime or up-and-coming neighborhoods are gobbled up by investors. Knowing how to identify top real estate investment locations is pivotal to investment success.
When shopping for flipping opportunities, look in locations with strong:
When shopping for flipping opportunities, look in locations with strong:
- Job growth
- Employment rates
- Population growth
- Property appreciation
- Schools and amenities
- Public transportation
Property Research
Once you have identified low-cost investment properties in growing markets, it’s time to research the property itself. To adequately research a property:
- Consider Physical Characteristics: Structural or water damage can make even the most cost-effective property a bad investment. Similarly, investors must consider the uniqueness or uniformity of each property compared to others in the neighborhood. While hints of uniqueness can attract buyers, in many cases, a home that stands out in a neighborhood can be more difficult to sell than one with similar features.
- Identify DIY Opportunities: Sweat equity can further expand profit margins on undervalued properties. Identifying DIY renovation projects, like painting or landscaping, can give you a better sense of overall costs and profitability.
- Perform a Project Analysis: Project analysis is a tool that helps investors learn how to find undervalued properties on the market. Fortunately, analyzing a property’s potential is easier than you think and only requires a few real estate formulas.
- Overall project costs
- Margins
- Potential holding times
- Maximum allowable offer
- Market demand
- Profit and ROI potential
Financing for Undervalued Properties
One of the most overlooked aspects of home flipping is financing. While knowing how to find undervalued properties is essential, having flexible and reliable financing to pounce on real estate opportunities is critical.
Finance of America Commercial (FACo) has provided real estate investors with the capital, knowledge, and speed necessary for buying undervalued properties and profiting heavily on them. Our fix and flip and construction loan programs, and our expert team, provide the tools and skills necessary to identify undervalued properties, outpace the competition, and succeed in today’s markets.
If you’re ready to learn how to find undervalued properties and profit from them, let the FACo team help you. CLICK HERE to schedule a FREE consultation today!
Finance of America Commercial (FACo) has provided real estate investors with the capital, knowledge, and speed necessary for buying undervalued properties and profiting heavily on them. Our fix and flip and construction loan programs, and our expert team, provide the tools and skills necessary to identify undervalued properties, outpace the competition, and succeed in today’s markets.
If you’re ready to learn how to find undervalued properties and profit from them, let the FACo team help you. CLICK HERE to schedule a FREE consultation today!
