I want to speak with viewers about a touchy subject in today's shaky economy.....investment properties. I am a real estate agent as well as an investor. I began looking at homes from a very young age, from birth actually! I was born into a family that builds homes for a living. To say I understand many concepts of how a home is put together might be an understatement!
Something has been bothering me over the past few months and I would like to share it with you. I live in the heart of a city that is large enough to have suburbs. The neighborhood is considered working class with a very large potential. Less than 2 blocks from my home are multi-million dollar mansions, many of which have been handed down for several generations. Approximately 3 months ago we had a property at the end of our block go up for sale. The list price was $30,000! Now many of you are going to ask me some very obvious questions, i.e. must have been in a bad neighborhood, how bad was the house, how much work needed to be done on the property, and so on and so forth.
Today's market has become both good and bad. Very good for home buyers, and an absolute nightmare for the seller. Many of the sellers frustration comes from one thing: the past market. I often ask the question, is today's market bad? Or are we finally coming to a more normal market? The answer in reality is whatever the market is at the moment makes it the normal market. The past only tells us what a property could sell for whether it be an up or down market determines how much of a profit a seller might see, if any.
Back to this $30,000 home. Let me make a side note, this home sold 6 years ago for $297,000! Upon viewing the home a couple times with potential clients I came to realize that their is a severe problem with the majority of investors. Lets look back to about 5 years ago, investors were willing to buy any where from half a dozen to a dozen properties for a minimum of $100000-$150000 each, and spending wasn't an issue. Today getting an investor to purchase a single property for less than 10% of what they would have paid 5 years ago is becoming a nightmare. When you ask an investor why they wont purchase almost unanimously they say "its too risky" Remember these are the same people who were purchasing properties by the truck loads without any thought of cost, they were buying high and sometimes selling high, these were the same people that would buy a property for no other reason than it was for sale. Now the subject property I have been speaking about; this particular property needed a minor amount of work, most of it cosmetic. Upon entering the home it became apparent that the house had an enormous amount of character, from the beautiful natural trim, to the gorgeous stairway. Once again the problems were very minor, the walls needed paint, the carpet needed to be torn out (hardwood underneath) a few patches to the walls, and the kitchen needed new appliances as well as new flooring. To the person who doesn't have a handy bone in their body maybe a bit more, but then who cant paint? It doesn't take a pro to tear out carpet, only to install. The kitchen floor may have been a little more daunting, but find cheap tile and give a friend an incentive and that work could be done for extremely cheap. The appliances are an easy fix, get something inexpensive and in most cases you can have those hooked up for almost nothing.
The majority of the properties on the low end have been abused, lets face it, a disgruntled homeowner who is being evicted is upset, he no longer cares and in the process he has worn his shoes throughout the home, while moving they probably "bumped" the wall, along with deep scuff marks. Dont look at these particular items as overwhelming, paint might be the cheapest upgrade in a home. Do you realize that if many of the banks would tear out the carpet and paint they would more than likely sell for a minimum of $10k-$20k higher? And they wouldn't even have to put new carpet in! Folks most of these homes, if you shop properly need to look like they have been cared for. I figured on the above house we would have to invest about $10k in materials. The labor portion would come from my own two hands. Not to say my time is worth nothing, but to cut costs I would rule out the professional. When looking at these particular properties I pay very close attention to a couple of things. For almost every house that needs a roof or windows to make the turnover complete, I move on to the next property. These two items are probably the the costliest items and if you can avoid them. One window or a door might be fine, as in some instances putting in a door alone can add value to curb appeal. But don't plan to replace these items on the entire project. When I look at these properties I am trying to really only look at condition. I am already in the area I want to be, if it was out of my price range I wouldn't be looking at it anyway. My whole goal is what is it going to take to make this house a home.
Finally and here is a concept to think about. We as a society want instant gratification. When we swing the bat we want grand slams. For the majority of investors making a decent living just isn't enough. If I told you that by investing and fixing properly 5-6 homes per year you could make a 6 figure income would you believe me? Folks don't be greedy!. When it comes to selling the property don't go for the grand slam, you will probably never make a million bucks turning a home. Be honest with yourself. Is your time and money better spent to have this property listed and sold in 2 weeks?, or 8 months? Saying I could have listed it for another $5k in another month isn't the way to think. That is time you could have spent fixing your next property. Your goal should be to make money! A listed house isn't making money, it is being trampled through and abused by every buyer. If every other home in the area is listed at $125k list yours for $115k (remember it is your time and money, if you have more than that into the property you MUST sell higher) Hopefully by putting most of your own time into fixing has offset the cost of a professional. Remember, if you are not sure of how to do something you will SAVE money by bringing on a professional. The time spent fixing your mistakes could have been offset by bringing in someone who knows what they are doing. Your entire goal should be to move, the next property is your next dollar, plain and simple.
I will be doing a series on this subject, to read the series in full visit:
http://sites.google.com/site/investmentproperties4dummies
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