In the aftermath of the economic crisis, foreclosures and other distressed properties have abounded. However, just because a property is selling at a reduced price doesn’t always make it a profitable venture. Here are five tips to help you spot the bankable rehab properties amid a forest of distressed foreclosures.

1. Pick a property you would want to occupy. Whether you’re intending to flip the property after the rehab or to hold on to it as a longer-term investment, you may need to rent it out at some point to offset maintenance costs. A bankable rehab property will attract stable tenants as well as buyers. For houses, access to parks and shopping are important. If it’s a larger house that will appeal to families, then make sure it’s in a good school district. If it’s a commercial property, then make sure that its location is suitable to the type of tenants that you want to attract and that it has the proper zoning. And, finally, if you wouldn’t want to live or run a business there, then potential tenants are not likely to either.
2. Get an estimate from a contractor. Whether or not you’re planning to obtain a hard money loan or other financing to purchase a distressed property, you should get an estimate from a contractor before purchasing a fixer-upper so that you have an idea of what to expect as far as costs of repairs and other improvements that are necessary to increase its value and salability. Unless you already have a contractor on your team, this may run approximately $200 to $300, but it’s well worth the money to distinguish between properties that have potential and properties that will cost more to fix than you can flip them for.
3. Buy a property in a market where prices are about to turn around. The key to successfully flipping real estate is to buy at the lowest price and sell at the highest. To do this, you should establish connections with local realtors who can tip you off to neighborhoods with rock-bottom prices (now) that are about to rebound. This will require time, effort, and research on your part, but it will pay off in the end. Your ability to close quickly will motivate Realtors to let you see the property first.  To create the ability to close quickly, make connections with bridge lenders in your area before you need them.
4. Focus on short-term rehab projects. A property that is undergoing repairs is a property that isn’t making you money, so choose properties that can be quickly rehabilitated and then either resold or rented out. Also, repairs and time eat into your profit margin and can drastically reduce the profitability of a property when it is finally ready to be sold.
5. Hire a contractor to do the repairs. Your initial cost estimate should include the costs of hiring a contractor (unless you are a contractor yourself). While doing the repairs yourself to save money may seem like a tempting option, it may backfire if the project ends up more complicated than anticipated or it may result in an unprofessional look that doesn’t appeal to potential renters or buyers.

If you’re looking at purchasing distressed real estate, keep in mind that hard money (bridge) lenders such as Montegra Capital Resources are often more willing to lend against such properties than banks and other institutional lenders. Contact us at 303-377-4181 with any questions about our bridge loan programs.