One of the methods used by most real estate investors is to purchase a distressed property either because of foreclosure or because of its run down state and renovating it and reselling it for a profit. However this method has several pitfalls for the unwary and I will highlight three of them here in this article.

Pitfall #1- The surrounding neighbourhood

Ever wandered into a neighbourhood and wondered why property prices there were always lower than the rest of the district? One of the key things therefore is to take some time to walk around the neighbourhood in which your potential real estate investment is situated and then observe. Things to look out for include drug haunts, many broken down houses which are a good hangout for organised crime. Vandalism on walls that is not painted over represents a bad sign as it could indicate that the area is potentially crime ridden. Thus you want to avoid a bad neighbourhood as buying a property there and fixing it up would not get you a much higher price on the property.

Pitfall #2- The physical state of the property

Some times, even when the property is found in a good neighbourhood, there has to be a reason why the property price is at a bargain. If you are new to property inspection, bring a contractor, a structural engineer or architect along to inspect the property and tell you whether there are any hidden faults. In addition, bring along a prospective real estate agent that will do the rentals listings for you or resell the property for you to provide you with an independent assessment of the property. This incidentally is in line with Napoleon Hills Mastermind principle which states that to be successful, surround yourself with smarter people than yourself so that you can boost your own success.

Incidentally if you are interested in foreclosures and auction property, always make it a point to spend some time to examine your real estate investment property before attending an auction since you want to ensure that you are bidding on a piece of property that is not termite ridden.

Pitfall #3- Legal Title

Sometimes the legal title of the property may be more than meets the eye and this is why the price of the property is below the market. There could be for instance two lenders with mortgages on the property and as such your legal liability could be way more than the cost of one mortgage. Make your purchase contract, conditional upon due diligence by your attorney.

For the same matter, not all foreclosure and auction sales are a bargain, spend some time looking around the neighbourhood and look out for things that may affect the legal title of your property like unpaid property tax liens on the property, rezoning or some new development down the block that may affect your legal title. One thing that sometimes people overlook is the concept of access to land in the form of easements and tenements so remember to ask your attorney about this especially if the property that you are looking at is landlocked.

In conclusion, when looking for your next bargain buy and re-selling bargain property investment, spend some time thinking about these three important considerations. Take massive action today and reach your real estate investment goals.

By Joel Teo 2006 All Rights Reserved