How to Evaluate a Property to see if it's Deal or NOT

[Georgia H.]

I have been receiving e-mail drips from my investor friendly real estate agent. I found a property that I am interested in; the DOM-MLS is 246 days. The house does need work done to it and it is in a very nice neighborhood.

The list price is $51,000 marked down from $80,000. I checked the public records and the tax value is estimated at $98,000. How do I evaluate this property to see if it is worth putting a contract on?  

I guess I need to know how to evaluate the property so I do not make any terrible mistakes...

[Gilbert Dominguez]

The bottom line will be if you can and will make a profit by buying this house or not. First you know there are repairs to be made. You will need a way to accurately assess what that repair figure will be and how much time it will take to effect the repairs. 

Everyone's situation may be different. Will you want to buy and hold this property, in other words keep it as a rental or will you want to sell it right after the repairs are made and the house is in a better condition and more desirable to and end buyer. Besides all the money you will spend versus what you can get for it at sale you also want to consider what will be your tax consequence because of the money earned from a sale?

You may end up getting taxed on regular income as well as have to pay a self employment tax. Does it make more sense to buy and hold versus doing an immediate flip?

Really there is allot to think about not just if you can buy, fix and have a house you can sell at a profit compared do what it will cost you to purchase it. 

You will need to buy an insurance policy and account for that expense, you will need to pay property taxes on the house and account for that expense. You will need to account for any buyer escrow fees, certainly the repairs will come out of your pocket and when you sell if you sell the real estate agent's commission will also be deducted from the sale price. 

Then after all is said and done you will need to deal with the taxes on your transaction based on your total gain on a sale if you sell. 

Look at the property and evaluate it as a buy and hold, meaning again something you will keep as a rental. 

It is normally not good if the house is appraised for property taxes higher than the house is worth on the market. You might think to look for any way you can get your property reappraised for property taxes, this will cost you more time and work and perhaps even an expense to do this if it is possible for this property. 

Sometimes when we first look at a property we think , " oh I found a good deal" but after you account for every single expense and cost in time you may find it is not a good deal at all.