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One of the most common mistakes that many new real estate investors and first-time home buyers make is overestimating a property’s true market value. The result is overestimating its resale value or rental income potential, which can have a negative effect on any potential profits in the future.
Loss of Profits
A good example of this is when someone buys a foreclosed house or fixer-upper with the intent of repairing it and reselling for a quick and easy profit. However, in all too many cases, the buyers find out the hard way that they were charged way too much for the property, and they underestimated necessary repair costs. In the end, they find that they cannot sell the property for as much or as quickly as they wanted. Additionally, people who buy property with plans of renting it out are sometimes disappointed when they find that they cannot rent the property out for as much as they had planned.
Whether you plan on buying property to rent or resell, you must be sure that the price is fair according to the local market. This is especially true in today’s economy where property values have dropped significantly. If you save money on the purchase price, you can also save on the down payment and mortgage, which means a larger profit if you choose to resell or lease it.
Do Your Research
In order for you to estimate the true market value of a piece of property, you must find out how much money similar properties are selling for. There are many ways you can accomplish this; however, the best ways are described below.
Check the County Auditor’s Office
Check your county auditor’s office and find out how much other properties in the area have sold for. You can also find out how quickly (or slowly) homes in the area sell. Finally, and most importantly, you can find out how much the property you are interested in last sold for and when the transaction occurred.
Check Real Estate Listings
Another way to get an idea of market values in the area is to check local real estate listings. You can do this either online or through local newspapers. If you choose, you can even set up some appointments to visit a few houses. This will help you compare properties.
Talk with an Agent
Finally, before you make a final choice to purchase a piece of property, talk with an experienced real estate agent. Agents can show you an entire list of similar properties and their purchase prices. Furthermore, they can let you know how much properties typically rent for in the local area.
Check Your Options
Everyone wants to save money, especially in these difficult times. As such, you may wish to shop for various bargains such as foreclosures, short-sales and for sale by owner properties (FSBOs). However, no matter what you may choose to do, it is essential that you do your research and make sure that you are paying a true market value price for your property.
This post is contributed by Trae Mindiola, who is partner of Republic Property Tax, a full-service property tax consulting company based in Houston, TX. They represent business and homeowners in protesting property taxes. Lending Expert Blog takes no responsibility for the accuracy of the post.