Identify Undervalued Property: 10 Tips for Finding a Diamond in the Rough

Undervalued property, in any type real estate market, can be the best way to break into real estate investing, increase a more experienced investor's profits, or just plain bet on something typically solid in such a fickle economy. Identifying those diamonds in the rough is a skill worth honing, and here are ten signs to look for, in no particular order, when scouting that gem out.

1.) The lawn hasn't been mowed in, like, 10 years

If you continually drive past a property with a yard that could be a co-op for snakes, it's likely that property has long since been abandoned or foreclosed upon. The promising thing about that is that the owner might be willing to sell cheap to get rid of the neglected shack. Get to the registrar of deeds to find the owner, offer something lower than comparable properties would go for, and try to swing yourself a deal.

2.) The paint/architecture/windows look like a blast from the past

Sometimes people don't update their houses. It's a shame, but it could also mean a deal for you. Most buyers are looking for modern conveniences included in their purchase. Spending money on new siding, neutral carpet that replaces the green shag, and up-to-date appliances can be a small expense compared to your profit from purchasing a house nobody else will make an offer on because it's a bit old-fashioned.

3.) The for sale sign is as faded and sagging as the property

You've seen those properties and can't deny it...they've been for sale for a looonnngg time. While one might think this would suggest overpricing, the opposite could be true as well. And a too-low price can create a wary buyer. There may be something wrong with the property dragging its value down - that no investor has been willing to tangle with yet. Maybe the seller is picky about who they want to own the property. Or maybe the problem isn't really that terrible. If you've got time or money someone else might not be willing to invest, you might be able to make this deal happen. And if the seller is getting sick of sporting that for sale sign - the price might be right after all.

4.)The property is For Sale By Owner

This one might seem too obvious, or perhaps on the contrary incite some skepticism, but the fact is that many people simply don't know what their house is worth. These sellers are fewer and farther between, however, since the advent of such websites as housevalues.com and realtor.com. Thanks to the current economy, though, the prominence of sellers on the brink of foreclosure, divorce, transfer, or other desperate circumstances create a deal for an investor willing to close quickly and efficiently, without squandering money on representation. Not only do you stand to profit from a great deal, but you're also helping someone out of a financial bind. It's a win-win situation for everyone involved.

5.) It's out of its league

If you know your area's neighborhood's well, you can spot that single-family home surrounded by businesses that has changed hands seventy times in the last year. Learn some stuff about rezoning properties and buy up that little house to convert to small offices or the like. It might be under priced because finding a comparable property in such a lonely area can be tough and the sellers see an uphill battle about to commence.

6.) It could use a bath

A lot of investors don't want to deal with a house that could just use a good power-washing. Hiring help to haul trash, clean up debris, cut the grass, and apply a fresh coat of paint can be cheap if you want to profit from someone else's neglect. All it takes is envisioning what it could look like and making it happen.

7.) It's condemned

Don't get me wrong, windows broken out and a warning on the door from the city aren't the pick of the litter. But different cities have different codes and the reasons for a property being condemned are sometimes subjective. One benefit of a label of condemned is that there will be information about the property's problems there to work with. Find out what the reasons are, and if the structure is sound and the problem easy to remedy, you could have a great deal waiting in the wings.

8.) Rumor has it

There are some properties that are undervalued because of something the community itself has against it. Maybe a tragedy happened there or it has been the subject of some sort of family dispute or even a ridiculous superstition. While grappling with such stigma may take patience and an ambitious vision of a positive change for the property on your part, this might turn into something you can profit from and still sleep at night.

9.) It's too close to the highway/stadium/concert hall

The property that was once a catch now sits unwanted because of the growth of the city beyond it. Always sad, and almost always a good opportunity to buy a property for less than what it's actually worth. Sometimes it can be resold in its original glamour or after a quick rehab, or even offered up for a good price to those developers that made its life difficult in the first place. Either way, it's probably a great deal.

10.) It's a rental

Watching a property go up for rent again and again can mean many things - one being that the owner is growing tired of its unpredictable income. In your analyzation of your local real estate market, keep an eye out for places that don't seem to keep tenants. Whatever the reason for the turnover, many landlords eventually become disillusioned to their profession and just want to get rid of the property once and for all. And they are usually willing to sell for below the market value just to get it out of their hair.

Watch your market and keep these ten tips in mind and soon you'll be on your way to sealing a deal on a property that is selling for a little but is definitely worth a lot. Being willing to look beyond a grimy facade and see what could be will ultimately mean the difference between getting a good price and missing out on that one deal that everyone wishes they had known about.