Real estate is one of the quickest and most sure-fire methods of building wealth over time. But you don’t have to be a real estate investor to get in on the fun. Your own primary residence can be used as a net worth building tool.
The key is to buy a house that’s capable of being enhanced. In other words, you want a house that has potential for an increase in value. Here are some tips to help you find one:
1. Buy in an Up-and-Coming Neighborhood
If you’re planning to stay in the house for a few years, you should purchase in an up-and-coming neighborhood.
“Up-and-coming neighborhoods are a long-term homebuyer’s ideal situation,” Green Residential mentions. “Essentially, this means the neighborhood isn’t currently in perfect condition. It may have a higher-than-average crime rate or may be lacking certain amenities. But it also has a lot going for it, and over the next several years could easily become one of the hottest neighborhoods in your city.”
Unsure of what the up-and-coming neighborhoods are? Ask a handful of local real estate agents and investors for their opinions. If you hear the same neighborhood mentioned two or three times, it’s a sign that good things are coming,
2. Buy the Least Expensive House in the Neighborhood
You never want to be the most expensive house in the neighborhood. You’ll have a hard time getting your value back out. It’s much better to be the least expensive house in the neighborhood – or at least on the lower end of the price spectrum. This gives you a much higher ceiling to grow into. (It also means your value will rarely fall below its current point.)
3. Buy a House With Dated Finishes
Unless you’re an experienced contractor or handyman, don’t mess around with purchasing a home that has real issues with things like plumbing, electrical, foundation, roofing, mold, mildew, and other intensive projects. Instead, look for properties that have good “bones” with outdated, cheap finishes.
Paint, hardware, backsplashes, flooring, light fixtures…these are all things that you can upgrade rather inexpensively (especially if you do the work yourself). However, they also pack a powerful visual punch, which can persuade an emotional buyer at resale.
4. Buy a House With Unfinished Square Footage
Square footage is very important in home valuations. The kicker is that unfinished square footage – like a basement that hasn’t been drywalled or a walk-in attic space – don’t count as square footage. If you can buy a house that has these features and then finish them off yourself, you instantly increase the square footage and the value.
Consider, for example, a 400-square-foot walk-in attic on the second story of a house. If you do the work yourself, adding drywall, flooring, and finishing touches might cost you $15,000. But if the average price per square foot of homes in your neighborhood is $160, you’re able to add $64,000 in value! This is easy money.
5. Buy From a Motivated Seller
There’s an old saying in real estate that you make your money when you buy. This means your profit comes from purchasing at the right price point. If you overpay for a house, you’ll be hard-pressed to ever get much value out when you sell.
One of the keys to buying at the right price point is to purchase from a motivated seller. You can do this in any number of ways, including physically driving by houses and looking for properties that show signs of distress; going to the courthouse and pulling a delinquent tax list; and/or letting local real estate insiders know that you’re in the market for a “fixer-upper” or “pre-foreclosure” house.
Be a Smart Homebuyer
Every homebuyer is different. Some people would prefer to buy a turnkey house that allows them to sit back and relax with very little need for upgrades, maintenance, or repairs. However, these same individuals often have a hard time eking out a positive return on investment – except by holding for long periods of time and banking on the real estate values to climb. Other buyers, however, would prefer to put in some sweat equity and immediately enhance value.
As you search for a house, it’s important that you get clear on which camp you fall into and to know exactly what you’re willing to put up with. By setting your expectations accordingly, you can ensure the process goes much smoother.