As a Realtor, one of the skills I bring to the table is helping my clients determine the investment value of their purchase.
This doesn't always work the way that we expect (the bursting real estate bubble caught almost everyone by surprise), but it is something that every purchaser should consider.
There is more to evaluating an investment, than just how quickly your equity will grow. One of the most important things to consider is how quickly you could sell your home, if your personal situation changes.
At any given time there is a pool of buyers looking at homes in your local area. Sometimes this pool is larger and sometimes there are more homes for them to evaluate. One thing that remains constant, however, is that the more of these buyers who will consider your home, the more likely you are to sell it in a timely manner.
For instance, if you bought a 3 bedroom, one bath condominium and now need to sell it, the number of buyers who will consider this purchase will be likely (but not always) be limited to a single person looking for a guest room and a study, or a couple. Most people who have children, or who want to rent out rooms, will look for at least a 1.5 bathroom property, but would prefer a 2 bathroom (the gold standard in Northern Virginia condos is a 2 Bedroom, 2 Bath, as this is the most popular configuration for buyers).
I showed a property this weekend where I talked to my client about this very subject. It was a lovely 2 story, 3 bedroom townhouse. It had high ceilings, a spacious kitchen and opened onto common ground. So what was the problem? It will be my client's first home purchase and he hopes to rent out rooms and build equity. The issue, beside the fact that it was a two story townhouse in an area where most TH are 3 levels, was that the top level was an enormous Master Bedroom and the rest of the home was on one level. While this would make for a great roommate situation, it would result in a resale that appealed to a smaller pool of buyers. Most parents of young children (often townhouse purchasers) would not be comfortable with 2nd and 3rd the bedrooms on a different level than the MBR. This, combined with the fact that it is a 2-story, would limit the pool of potential buyers and make it a harder resale.
Keep in mind that anything sells at a price, but when you have a home that has features that are unique, the easiest way to equalize unique features is by lowering price. This can reduce the potential return on your investment.
As a purchaser, you might find a property whose unique features appeal to you. As an investor (and anyone who buys property is an investor), you owe it to yourself to evaluate how the property will appeal to other buyers when, in the future, you decide to sell. If you are willing to accept that these unique features will work for your lifestyle, and may mean a slightly longer sales cycle in the future, then you have looked at the property realistically and will be a happier, and more successful, investor.
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