How Can You Spot a Good Deal?

The U.S. real estate market is either showing signs of recovery or continues to melt down to new and ever more frightening lows, depending on what you read and who is writing it.

The main reason for the wildly diverse reports from the field is that the real estate market in the U.S. continues to be incredibly location-specific Even within the same city, neighborhoods less than a mile away from each other can be very different in both price and prospects. How is a foreign investor supposed to sort through a mess like that?

A recent article in the New York Times suggests checking cost per square foot, comparable properties, and special features.

Here is a summary of some of the best tips:

• Choose a good realtor, but think for yourself. You are going to want comparable prices and average costs per square foot from your realtor. Make that clear and then base your decisions on your own thinking. Consult with your realtor, but don't expect your realtor to make your decision.
• Know the hot neighborhoods. Some neighborhoods will always be desirable, even if the market as a whole never heats up like it did during the last bubble. You have to know which neighborhoods are desirable and why to make an informed decision about whether any of them will remain desirable.
• Don't go for low price alone. Just because a property is dirt cheap doesn't mean it is a good deal. Some rust belt cities are already starting to bulldoze foreclosures that can't be sold at sheriff's sale at any price.
• Don't overestimate your rehab skills. Older homes are charming and often cheap, but a good inspection is a must, and don't gloss over what it reveals. Find your own inspector. If you let your realtor hire one you can be sure you'll get a more positive report. What you want is a realistic assessment of future costs and problems.
• Ask about other monthly costs in advance. How high are the property taxes? What does electricity cost in the area in which you are shopping? Can you get an insurance policy on this property at an affordable price? If you are looking at condos, are there condo or monthly maintenance fees? If you are looking at a gated community or suburban home are their home association fees? What does the tax base of the host city look like? Has the city lost lots of industry? Does it have a high foreclosure rate? If so, expect a tax hike or other problems in coming years.
• What are your plans for the home? Do you expect to live in it yourself? Or are you planning to 'flip' or rent it, or just hold it until values come back and them resell? Your answer will factor into whether or not you are looking at a 'deal'. In some cities, investors who gobbled up dirt cheap properties at tax sale with a plan to hold and resell them in six months to a year are getting hit with code enforcement fees from the city that can top $600 per month or more. If you are borrowing money to invest in homes only to resell them quickly, be aware that American insurance companies will cancel the policy on any home vacant for more than 30 days, and the city will often harass you to death for letting the home sit. If you plan to rent, have you checked into the rental market in that area? Even apartment complexes are having difficulty renting out all their units right now and many are going bankrupt due to the commercial credit market crunch. Don't assume you can rent your 'deal' without checking into the market first.

It is possible to buy now and come out ahead, but it isn't easy. Picking the wheat out of the chaff is a skill, and one worth developing with lots and lots of shopping before taking the final plunge.