So what do you see when you look at your home or when you do a home showing?
Think about this the next time you go to an open house…
When you walk into an open house most people, and even me myself depending on the home of course, usually have looked online first and have seen homes that are just jaw dropping. I mean, some of these homes are beautiful and just look amazing.
And I have seen the look on my buyer’s face when they look at some of these homes. They are just in awe by the grandeur of the the home. The amenities, the finished touches, the ambience. And then, of course, the price. Some people are willing to pay or put in an offer right away.
But is that all you see? Most of the time when I’ve seen homes I like, there is nothing in my mind except the feelings I get or the picture in my head of living there. Seeing my kids playing in the backyard, my wife enjoying her kitchen, me waking up in the morning and watching a good football game in my man cave.
But in reality this is probably going to be the biggest purchase of your life, so let me tell you what to look for as a buyer… Or as an investor because, in reality, the buyer should always look at this purchase as an investment. Yes, you’re enamored with these thoughts and the pictures that you have imprinted in your head of living in the home…
But its a 15-30 year commitment.
What I did as an investor is I used that home as leverage, especially if it’s my starter home. And that’s what you as a buyer need to do.
Single family homes have a certain criteria that would totally make sense buying.
Location has to be a must with a single family home. The location will dictate how you’re going to proceed with your purchase.
So look at the neighborhood. Are people purchasing a lot of single family homes?
Are there flippers flipping in the same neighborhood and what kind of homes are being flipped? Why is there so much inventory or the lack thereof? Are there multi unit properties or mainly single family homes in the area and why? Demographics is another way of predicting how you will proceed with your investment.
Best case scenario with a single family home is that you get the home at the median price range and that the neighborhood has the ability to prosper to the point that your investment will double in price and create at least 25% of what you’ve paid for in equity in let’s say 5-8 years.
Also, how quickly can you rent it out if you choose to gather your equity to buy your second home? These are some of the steps left out by most investors/ buyers, but its crucial in becoming a home owner.
Another thing to consider is the type of loan you can get and at what terms. Are you willing to refinance? Because there are also closing costs when you refinance and guess what? Yes, there’s a new loan with XX amount year terms.
And last, but not least — taxes. It’s inevitable that taxes only go up, never down, so you must figure taxes into your monthly costs.
Now my go to investment and the only one I suggest for the best results is the multifamily homes 2-3 units.
The loan terms are way better because they are factoring in the fact that you will have “steady” income renting out the other units. And steady is in quotes because you might have renters or you may not. So there is the landlord part to keep in mind. Yes, its not for everyone. But if you do your due diligence with the renters, then you could have a money making machine on your hands.
The question is, do you want to live in the home or strictly rent it out?
If its your fist home or a starter home then yes, I suggest to live in it because your loan will be way better with that being your primary residence and your tenants’ will pay off your mortgage.
Now this part is crucial in buying a multi unit: It’s the price and the neighborhood.
The neighborhood will dictate what kind of tenants you will get and how much rent you can charge. Also, taxes. Yes, the taxes only go up from here (a tear drop just squirted out of my eye).
Now let’s talk price. It’s usually median price for multi family buildings. But there are always one or two over priced or under priced properties so keep an eye out so that your investment doesn’t become the highest on the market, or if is under priced, then before you jump at it ask your self why is it under priced? There are a lot of owners that are willing to walk away from a mess or a project in the making.
Another thing to consider when you buy multi units is what are the rents going for in that area. Now this was my mistake when I bought my first home. So you can’t charge $1000 dollars when rents are going for $600, for instance.
Also, the profits on the home are strictly for investment to be used for your next project or in case you need to fix up the current home. There are always expenses. Hopefully, only minor ones. So don’t go out and buy a 65 inch LED just yet.
Keep in mind, all these things should be considered when talking to a real estate agent or broker when looking for someone to represent you as a buyer’s agent.
Finally, there’s the rule of 7 that can be factored in to these equations. It’s not an exact science so it may or it may not apply to your purchase.
By the way, if you don’t know what the rule of 7 is then you need to start reading. And do some research before you take the plunge into home ownership. Read as much as you can about the investment that you’re going to make because, whether or not you want to believe it, being a home owner is the same as being an investor.
If you have any questions or comments about this blog or post, or maybe you want to know more about purchasing your home or investment, you can always reach me at:
Eric Posadas, ReMax Partners
Always “Creating relationships one home at a time.”