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The 2 Nearly Unsolvable Investment Property Problems

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House choiceThey say there’s no problem price can’t fix. This is true for just about any product. Even the most hideous shirt on the rack will sell if it’s priced right.

So what about when it comes to real estate? Is there a price so ridiculously low that regardless of a property’s size, condition, location or functionality that someone will buy it?

The answer is yes.

But the problem with this concept is it’s nearly impossible for real estate investors to know exactly how much of a price discount is required to overcome a property’s adverse selling conditions.

Let’s say, for example, there are two single-family homes identical in size and features directly across the street from each other. However, one of them backs to a busy interstate and the other to existing homes. Obviously the home with a freeway in its backyard is worth less.

But how much less? 5%? 10%? More?

A few days ago I received a call from the seller of a Milwaukee investment property. He listed all of the positive points about the house, and then quickly mentioned the fact that it backed to the freeway. Not to worry though he said, there’s a large sound barrier so the noise is minimal.

Clearly this is an adverse selling condition and will affect our ability to lease the home, as well as sell it to an investor. Rather than guess on how much of a discount is needed we prefer to say no to properties with any glaring adverse selling conditions and make the decision to buy Milwaukee investment property based on these two main factors, location and floor plan.

Location

The key to owing profitable real estate in Milwaukee, or anywhere else, is location, location, location. And while it may sound like a cliché’ (it is), it happens to be the truth. That’s why we stay away from single-family and multi-family properties that back or front to busy freeways or intersections, industrial buildings, power lines or railroad tracks. We stick to properties on interior streets close to retail shopping, schools and freeway access.

Floor Plan

A house or apartment with a poorly designed or closed off floor plan is difficult to rent or sell. In some cases with the right vision (and budget) the layout can be changed. However, I’ve seen plenty of properties where there’s little that can be done. If this is the case we pass on the purchase. If the prospective tenant has no place for their couch or expensive entertainment center then it doesn’t matter how much we charge in rent, there won’t be any market for the property.

Conclusion

Unfortunately, an entire house can’t be picked up and moved to another more desirable area of town. And rarely is it economical enough to revamp a non-functional layout. Rather than take a risk of inaccurately determining the negative effects these issues have on the sale and rentability we only purchase those properties in good locations with functional floor plans. That way there’s no need to be concerned with whether or not we’re buying at a price low enough to compensate for the adverse selling conditions. We take those variables out of the equation.

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