By a virtual show of hands, how many of you are hunting and searching for your for investing deal this weekend? For those of you that raised your virtual hand as a "yes" to deal-hunting, do you feel anxiety about buying an investment property? Do you feel like you might not be able to keep up the payments, or afford the rehab necessary to get the property ready for resale, or afraid of any problems that might come up with inspection?
"Most people only buy a couple homes in their lifetime. This lack of experience leads many investor buyers to feel woefully unprepared...” says Justin Pierce, a real estate investor in Northern Virginia. It certainly is a big move for most of us, but as Pierce writes in his story on the Washington Post website, "you’re not getting married. You don’t have to make a lifelong commitment to a property", and adds that you can always sell later "if you fall out of love with your long term investment, as long as you buy right."
Pierce writes that he buys a home "almost every month", and admits that even with his experience, "it’s hard to know whether to pounce on a deal or to walk away", but says that the process doesn’t have to be so complicated "if you keep things in perspective."
There are a set of rules that he relies on when buying an investment property, and he says that these same rules can be used by anyone buying a house. Pierce shares his wealth of knowledge here to give us some great tips:
Tip #1. Get the Facts:
Pierce says the number one rule is "do not overpay for a property", and says that he never buys on future value (and refers to that as an illusion that got many of us in trouble). He suggests being realistic if estimating the cost of repairs the property will need. Conversely, he cautions us not to let a home inspection "scare you away from a good deal", and he provides an example of a friend who had the opportunity to purchase a $650,000 home at a short sale for just $520,000, but walked away after the inspector "found a laundry list of items that needed repairs". Albeit a "scary" looking list, as he called it, it was about $20,000 of work, leaving the remainder as over $100,000 in equity. Remember: "Get the Facts!”
Tip #2. Don’t Fall Completely in Love:
"When I’m remodeling a home for a resale flip and I’m faced with a decision to either improve the home’s insulation or make the home more beautiful, I’m almost always forced to beautify.” says Pierce, who says that people who lack experience will rely on their emotions. He adds that Real Estate agents are well aware of this, and this is why they try to "decorate and stage a home so that people fall in love and forget the facts". He cautions that if you fall prey to your emotions, you can get into "bidding wars and overlook discrepancies that need more attention". The final point he makes on this tip is that "It’s much easier to replace kitchen cabinets some time down the road than it is to reinsulate a home. But people aren’t concerned or willing to pay for what’s behind the walls. They should be."
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Tip #3. Get Professional Help
Pierce says that "Real Estate Agents, Home Inspectors, Appraisers, Lawyers, Surveyors and Contractors are all valuable resources but they’re no good if you disregard their advice.", and he says the key here is "to trust but verify. In terms of a Real Estate Agent, speak with many different agents and ask for references, until you find one that you are comfortable with. Once you are working with an agent, ask your agent to go over comparable sales with you, and "not just spit out a value", as Pierce says, since this will "help you feel confident about your offer and reduce the risk of complications from a low appraisal."
Tip #4. Don’t Be Afraid to Pull the Trigger or Walk Away:
OK, so you have all of the facts about an investing deal or property that you are incredibly fond of, and if "the price is fair and affordable then don’t be afraid to seal the deal", says Pierce. On the flip side, if the price is above the market value or the price does not take into account the amount of work it needs, Pierce recommends that you "remind yourself that there are plenty of other houses to choose from".
Certainly some great tips here, but sometimes, when in the heat of battle and bidding for a home; it's easy to lose perspective. Pierce aptly sums up what your mindset should be during the process; "Remember a house is just sticks and stones and there are plenty of them out there."