Real estate investing is not as easy as HGTV would have us believe! I have worked with investors over the years, many of them giving it their first time effort. And many of them vow to never do it again. Those television real estate reality shows are much like an episode of Law & Order.
In just forty-two minutes plus commercials, a crime is identified, and a perpetrator located, arraigned, tried and sentenced. We can even fast-forward the more gruesome parts. But solving a crime in real life is not that expedient.
Similarly, reality shows will locate a fixer-upper, buy it, make repairs, then make more repairs, sell it then finally come the closing credits. What the program does not reflect is all the hours of work done by YOU, not a production staff, fears, worries and sleepless nights. There are no TV carpenters in real life. Yet, there are millions of speculators who have rented, flipped and held property with great success.
But in order to make money, one has to first begin with a good dose of reality. That means leaving your comfort zone, getting your hands on the problems yourself or at least learning from someone who has done it before. That Realtor® who sold you the property will gladly help you sell it, but she is a marketer, NOT a project manager for your new upstart. So, estimating repair costs, securing a loan, negotiating supplies and identifying competent contractors is all on you.
But we’re getting ahead of ourselves. Let’s just look at what type of property might be good as an investment. Do you want to rent out the property or fix one up and flip it? Renting to others means property management which is its own bundle of horrors. I know several landlords who do well with their properties, but it takes a certain personality. And let’s be real, renting is NOT “passive” income. You will work for what you earn, yet on occasion you will not earn what you’ve worked for.
But if the “in and out” strategy is your game, you need to first identify what could give you the biggest return for your money. You can say the word “location” three times, but it isn’t the only aspect to consider. Initial investment, repair costs, back taxes or HOA fees are just a few things to consider. A disadvantaged subject could yield you the greatest advantage in the end. Yes, that ugly home could be exactly what you were looking for.
Consider gothic architecture with its stone foundations, high rooves and cupolas. It’s a classic and beautiful design, but appears foreboding when it falls into disrepair. It is the very style featured in every horror show ever! Yet, some bright paint and lush vegetation can bring it back to life. You would be surprised what a little landscaping can do.
An investor makes money by seeing what others do not. Most buyers just want to get settled into their new home, free of repairs landscaping or remodeling. The adage of one man’s trash being another man’s treasure is true. You won’t make any money buying AND reselling at a fair market value. It can be an advantage to purchase the worst home in the neighborhood so long as it has “good bones”.
I remember I once showed a couple a property listing in the country. They fell madly in love with it! It was an older home the woman said reminded her of where she grew up due to the wrap around front porch and the man loved it came with several acres. But before I patted myself on the back, I looked up through the attic window and saw what appeared to be hewn tree timbers where the roofing joist should be. This can’t be good.
Upon closer inspection, my fear was confirmed. How old was this house? I related my discovery to my clients and actually begged them NOT to buy the house. The woman chuckled and the man waved his hand as though swatting a fly. “Oh, I’ve reinforced several joists after big snows in Michigan. This won’t be a problem.” He stated. I visited them a month later and they were still making some repairs, but the roof issue was resolved. My guess is this is exactly what scared away other potential buyers. This proves another adage, “There is a buyer for every home”.
Improvements are imperative, but also consider the square footage of the house and the size of the lot it is on. A smaller home’s value can proportionately rise if it is surrounded by dozens of larger homes. Conversely a large property will suffer when surrounded by starter homes compared to it being in a neighborhood of similar homes.
It is always wise to get a home inspection before you buy, especially if it is your first attempt at investing. The bank will also order an appraisal, but those are two completely different things. So, be certain you know what you are getting into.
Over the past few years we have had a heavy sellers’ market which created frantic competition for the buyers. As a result, a lot of Americans bought homes they did not necessarily want, but settled on what they could get at the time. In the not too distant future, look for many of those properties to come back on the market below their original purchase price in order for families to get the home they truly want. Just remember, one man’s trash is another man’s treasure.
© MMXXIII, This article is original work and written without the assistance of artificial intelligence. Blaine Little is the founder and CEO of Momentum Seminars Training & Coaching, helping companies remain profitable by investing in their people. Learn more about the power of Momentum at http://MomentumSeminars.com