The California real estate market is full of properties of all sizes, from tiny up to massive mansions. To some real estate investors, smaller properties hold the most interest. This is likely due to the relatively low investment required to purchase and remodel the home so it's market ready. However, there are three things to look for when reviewing a small property vs a larger property.
The first thing any investor should consider before putting money into a smaller property is the propensity for it to sell in the future. For fix and hold investors, it's important to consider the current rental market demand for smaller homes. This can be accomplished by simply looking at the current market conditions in the area for homes of similar square footage and location. Markets that are mainly occupied by larger homes may not be as favorable for an investor as those that see a larger number of smaller homes sell.
Although the price of a smaller property may be lower in comparison to a larger one, that's not the only thing to consider. It's also important to look at the cost of repairing, remodeling and upgrading versus the potential market value of the home. If the home has to be completely re-done on the interior and exterior issues such as windows and a roof are necessary, there may not be enough of a margin left over to make the deal worthwhile. On the other hand, a small home in need of minimal work could reap a huge profit margin.
Assuming that there is, indeed, a market for smaller homes in the area, and that there is also a potential for profit, the next consideration is turnaround time. Investors must ask themselves how long they can feasibly take to complete needed repairs and remodeling before the home has to be sold. Most times, the deadline is tight because the investor's capital is wrapped up in the project and will be needed to continue investing in the future. Fix and hold investors need to be concerned with how long it will take to get the property ready to rent.
While all real estate investors have to look at these three things closely before investing in a property, they are especially important to those investing in smaller properties. If you're an investor who's interested in small properties and you're in need of creative financing, please contact us at Trust Deed Capital. As a hard money lender, we've helped many investors, just like you, complete their projects and put sizable returns in their pockets.