I have benefitted greatly from training with the CCIM Institute. My work with other commercial Realtors and my readings in the commercial area have made me a better agent. When considering an investment property, CCIMs are trained to complete a 3-way analysis of the potential purchase.
I have started applying this system with home buyers (whether for investment or for residence). This diagram regards an analytical approach to a house purchase.
For residential real estate, I always encourage buyers to remember that the typical homeowner moves every 5 to 7 years. Thus, it makes sense to think of the property purchase as a mid-term investment. We must think Re-Sale Potential and Investment Quality when buying a house. Our organic side wants to buy a home, but I tell clients that we buy houses and make homes.
Nothing that is good for the soul can be bought.
I. Market Feasibility
- We must consider the overall characteristics of the community, city, or even state in which we plan to purchase. We can check the U.S. Census Bureau, the local planning commission, the local chamber of commerce, and more. Since school zones seem to be the biggest predictor of demand for housing, we can certainly target the purchase well within the boundaries of a preferred school zone. Buyers may want to examine demographics, percentage of multi-family dwellings, percentage of rental homes, etc.
II. Location / Site Feasibility
- This is the most important aspect of a property purchase in my view. When considering location, we look at major roads, accessibility, traffic density, red light placement, etc. Also, we take note of the house's position from the road, in the subdivision, in relation to parks/entertainment, etc. The goal is not to eliminate emotion or personal preference. The goal is to avoid a bad decision and (hopefully) maximize re-sale potential.
- On site, we consider the appearance and condition of the house. Obviously, the exterior and interior of the house are major decision points. However, the condition of the neighboring houses is a part of the analysis as well. I think we all know that surrounding properties and land uses can bring down values. In Tennessee, a really nice subdivision can be located adjacent to a trailer park. I tell buyers that we must take a holistic view of each house.
III. Financial Feasibility
- Realtors are not experts on mortgages or financing; however, we can offer some guidance or thought-provoking ideas for our clients. There are several financing options out there. If the property is owned by an investor or an owner with cash, partial owner-financing may be an option at times. But the bigger issue with this pillar of the analysis is to look at profitability, cash flow, and future value.
I hope this helps you in some way. I believe that our ability to analyze properties and negotiate contracts for properties will remain significant Realtor qualities into the future. We offer great value for our clients.