Ugly houses can be great investments, but we don’t buy them. We understand that there are lots of valid ways to make money investing in real estate. Buying and rehabbing ugly houses is certainly a good one, but we’ve chosen a different strategy. Our strategy is to buy good homes that are ready, or nearly ready, to move in. It has worked well and generated consistent profit deal after deal.
Can’t imagine getting a good deal on an attractive house? Believe it or not, there are bargains to be found because nice houses do go into foreclosure, people do move, and people still need to sell fast for a lot of different reasons. Sure, not every house we buy is beautiful and has an immaculate lawn. But you would be surprised at how many “ready to sell” houses are available at below market prices.
Like anything else, it takes work and know-how to find good houses. Here are three good reasons to look for clean, attractive houses.
1. Rehab and marketing time is greatly minimized. In many cases, you can show the house even before you buy it. In fact, if a house is clean and ready to show, we insist that we be able to show it during the time between signing the contract and closing on the house.
We are closing on a house in Chattanooga, TN this month that we sold before we even bought it. How did we do that? The seller was motivated because they had already purchased another house. We actually put a contract on it with the contingency that we would have it sold before we bought it! Our system of selling almost all of our houses on lease-to-purchase contracts keeps our average marketing time down to a week or two, so the contract with contingency was still very attractive to the seller.
The house was ready to sell. We only spent about $500 to fix it up. We sold it through a lease-to-purchase contract before we bought it, and our profit is $14,400 on this deal.
2. There are few rehab surprises. In our experience, no matter how carefully you examine a house before you buy it, there are always unexpected expenses in the rehab phase. It’s just hard to foresee some things until you begin remodeling. Of course, we prefer to keep these surprises minimized. Nice houses with little or no rehab are great for minimizing the surprise.
Incidentally, this is a good reason to have a home professionally inspected before you buy it. It’s also a good reason to budget some contingency funds for houses that do require remodeling.
3. Free up your time. You may enjoy the rehab and remodeling, but the path to true wealth in real estate is in finding and making the deals. If you are buying nice clean houses, then your time is spent in the deal making, not in managing the remodel projects.
Because we’ve made the choice to buy attractive homes, our profit margins may not be as extraordinary as some rehab deals might appear. We don’t have any stories of buying a house for $35,000, investing $35,000 in rehab and then selling for $100,000+.
Instead, our path to wealth has been through buying nice homes from motivated sellers at below market prices. We sell these houses through lease-to-purchase, or “rent-to-own” contracts at market or slightly above market prices. Our profit is generally $15,000 to $20,000 per house and our marketing time is usually less than two weeks.
You can do the math and see that buying nice houses can be very profitable for an investor. In our case, we prefer to handle more deals with these consistent profit margins, than work through the added stress of ugly houses.
Blake Watson is an active real estate investor,author and coach with Lucky 7 Seminars, a real estate investment training company headquartered in Chattanooga, TN.
email: blake@lucky7seminars.com
website: http://www.lucky7seminars.com
Real estate investing can be a dream career when the process of buying and selling is mastered. The biggest challenge in real estate investing is not the money to get started or the availability of the product. Real estate investing’s biggest challenge is judgment. Personal decisions in making the purchase, fixing up the right things, and making the sale require judgment that comes from experience. The second and 100th property should involve better judgment than the first.
An approach to the first acquisition in a real estate investing career involves analysis of the neighborhood.
If the target property is located in a familiar neighborhood, an analysis is clouded by past memories and feelings. Familiarity can preclude objectivity.
And if the target property is located in an unfamiliar neighborhood, the analysis is shrouded in immediate impressions that may or may not be accurate.
Real estate investing today must consider unfavorable elements like drug and prostitution traffic, crime statistics, and the overall visual impression of neighborhood negligence and abuse by property owners and/or tenants. The windshield view will not reveal the whole story.
Research at city planning and the police department might be a starting point, if the initial drive through the neighborhood does not arrive at a negative conclusion. Casual conversations with neighbors might provide clues. Watching from a perch unobtrusively during certain hours might be helpful, such as after school is out and after dark.
If analysis leads to the formation of good judgment, time is needed to assess “the Neighborhood Factor.” When I plunged into my first year of real estate investing, no one warned me of “the Neighborhood Factor,” and still I sometimes overlook it even millions of dollars in property purchases later. Buying $1 million in rental houses during my first year, and another $1 million in properties the next year did not leave me much time for analysis. However, when placing a makeover house on the market after the work is completed, “the Neighborhood Factor” has often come back to haunt me.
The bottom line for developing judgment about “the Neighborhood Factor” is the consumer’s windshield view. The real estate investor can become enamoured over the potential profit margin in a “good deal.” But the home-buyer and house-hunter make instant assessments upon a first approach to the house for sale. Their initial impression of “the Neighborhood Factor” is untrained and irreversible. And in real estate investing, the prospect’s first impression of “the Neighborhood Factor” overshadows their impression of your labored makeover. More times than I like to admit, I have created a “Dream House” from a junker, only to experience a slow sale because of “the Neighborhood Factor.”
Phil Speer, Ph.D., started his real estate investing career 25 years ago. Without the availability of credit and using only a $10 bill, he purchased $1 million in properties in his first year, and had accumulated $10 million in properties by his fourth year. He was featured in a Wall St.Journal editorial as most successful investor in the Nothing Down Real Estate Movement, and was honored with a Caribbean cruise as top investor of the year. In his hometown of Nashville, Tennessee, he has been a businessman and Human Resources Consultant for 30 years. He is an author, speaker and seminar director. To learn how to profit in real estate investing, even without cash or credit, read his report at http://www.CashinHouses.com/. Subscription is free to his Fix-up Ezine - http://www.AAREIT.com/.
Tags: investing in real estate, real estate, real estate investing, real estate investment, real estate schoolIn my profession as a home inspector, I get to witness some amazing flipping deals. Some are profitable, some aren’t. Here are the common mistakes I see flipper continuing to make.
#1. Falling In Love With The Home: Hey, it’s just a house built out of sticks and clay. There are thousands more. If you can’t keep from falling in love with every home you see, then flipping homes isn’t for you. Never forget it’s a business, treat it that way.
#2. Keep Your Mouth Shut! There’s an old saying in the Navy. “Loose lips sink ships”. More than once I’ve inspected a home for an Investor and have the Investor call up a week later saying they lost the deal to someone else. Some people just can’t keep their mouth’s shut. Wait until you walk away from the closing table to tell everyone what a deal you made!
#3. First Impressions Are The Most Important: Spend the dough on the landscaping and exterior of the front of the home. I’ve seen more homes sold and more homes fallen in love with (see rule #1) from a great first impression than any other single item. Clean and shiny door knobs, door knockers, coach lamps and address numbers will add to the impression. If it doesn’t add cosmetically to the home, get rid of it.
#4. Don’t go overbored The simple fact is that most homes can be flipped for a decent profit by cleaning and replacing the carpet and paint. Too many times flippers think they need to sink thousands of dollars on a home to make it sell.
Many times what happens is they will remodel the home and it ends up being priced higher than anything in the neighborhood and sits on the market untill the Investor drops the price. Take a page from the flipping pro’s book. Keep it to the basics. You’re trying to make a profit, not make the front cover of a glamour magazine.
#5. When In Doubt, Reread Rule #1 Some people need Rule #1 stapled to their forheads!
#6. Don’t Get Greedy! If you’ve priced your home well, then take the first offer that comes along. It’s not worth your home setting on the market for months because you’re too tight to come off the price a thousand or two. Reread rule #1!
Donald Lawson is a Professional Real Estate Inspector licensed in Texas (#5824) and Oklahoma (#454). He currently owns and operates V.I.P. Home Inspections, a Houston Home Inspection company. If you’re interested in investment opportunity’s in Houston Tx, see his Houston Real Estate page.
Tags: flipping a home, flipping houses, home inspections, houston, real estate, real estate investment