Deciding to purchase your first home is major decision. Fresh Look is an investment minded real estate firm, that means we help buyers identify a home that will help them achieve their financial goals in addition to providing shelter from the elements.
We are not in the business of selling you the dream of home ownership. In our view, their is little romance involved in home ownership. This is a major financial transaction, one that can greatly increase (or decrease) your families net worth.
If you want a broker to help you identify an investment worthy home, keep reading. If you want the highest priced home, in perfect condition, in the best neighborhood, please call a big box firm.
Your Home as an Investment?
Generally, we don't even consider your primary residence an investment,
because is does not produce income for you. In fact, it costs a lot of money! It costs the initial down payment PLUS the recurring monthly payment toward the mortgage, interest, taxes, and maintenance of the property. Your home is actually a major liability.
However, if eventually you sell that property for more than it costs your OR you move to another property and maintain the original property as an income producing asset, it becomes an investment.
Further, since you are paying rent for your current residence, you are simply shifting one liability (rent payment) to more beneficial liability (mortgage payment).
That said, our first objective when buying a home like an investor is:
#1 - Match Mortgage Payment to Current Rent Payment
With this objective met, you are simply transferring a rent payment to a mortgage payment. Even if you do nothing else from this article, you are at least forcing your rent payments into some kind of asset, rather than paying someone else's mortgage.
Our second objective when buying a home like an investor is:
#2 - Purchase with value add opportunity in a growing area
With this objective met, you are viewing your purchase as an investment. Your intention is to make more money out of the initial money invested.
How to Think like
a Real Estate Investor
Investors see potential, look for opportunities to add value, are numbers driven and think long term.
Seeing potential is about looking at a property and seeing through what it is and identifying what it could be through some labor and TLC. Seeing potential is also identifying areas or neighborhoods that are ripe for growth, over the long term. You can identify through observation, but you can also make it your business to know urban growth plans, zoning changes, and city plans to build schools, commercial centers, parks, and major roads.
Adding value to a property can come in many forms. This could be buying a lot large enough to subdivide and build a 2nd home. Or build a 3 car garage and workshop. Or even, a 3 car garage with a 900 sqft apartment above that you can rent for $1400/month?? Adding value could simply be working on the landscaping for 4 years to provide a tranquil setting in an otherwise hectic, urban location.
If there is no opportunity to add value, that means someone else has already added it, which leaves little to no opportunity to add (and earn) value.
Rationality should win over emotions when it comes to a real estate purchase. You want your decisions to be based on facts, data, and numbers. When looking at sales comps in the area, are you purchasing the most expensive home? Chances are, that is not a good deal. How much money will you need to put into the home in order to add the value you see? What is that return?
Finally, how long will it take to realize the return you are seeking? Generally, the longer you hold real estate, the better your return. Are you patient enough to reap the long term rewards of your investment? Can you put off a mediocre home now for the opportunity of a dream home later in life?
You will quickly learn that an investment property is a "Deal." Investors only buy deals. Fresh Look has developed the 'Equity Growth Trifecta' You will get the best deal when your purchase meets 1 or more of the 3 criteria:
Unique Situation - You are purchasing the property from a seller dealing with a personal issue that would encourage them to sell at a discount. Common issues are tired landlords, going through a divorce, a probate sale (meaning they've inherited the house), a recent job transfer, major deferred maintenance, a short sale, or an REO sale. Any of the issues above would inspire and/or require a seller to discount their property, to you the deal hunting buyer.
Needs TLC - An outdated or better yet, majorly ignored, property provides an obvious opportunity for value add. A home that needs new roof, windows, siding, flooring, paint, kitchen, bathrooms, and finish work will only be available to buyers looking for that kind of opportunity.
Growing Area - When buying real estate, you can change about 80% of the material facts about the home. There a few things you cannot change, such as the position of the house on the lot, the size of the lot, the school district, and the Location. As I mentioned before, knowing the neighborhood and city trends and plans for growth will allow you to purchase property today that you are fairly certain will appreciate faster than other properties, just because of its vicinity to future growth.
The advice above gives a general outline of how to buy your first home like an investor. By executing these 2 objectives, you will put yourself in a position with many options in the future. You can keep your property as a rental, you can re-finance, you can sell and use the proceeds to buy your next property, or some variation of the options above.
Real Estate Broker
DW Homes Investor