The housing market has reached historic lows after the 2008 financial crisis, which could make this an ideal time to buy an investment home. Home prices are down at least 30% since their peak in 2006, but are slowly recovering across the country. If you are wondering how to buy an investment home, here are five tips to make the process easy and profitable.
1. Buy on Location
There are undervalued homes in neighborhoods across the country. Buying an investment home shouldn’t be about where the lowest prices are but where the prices are most likely to rebound. A home in a rural area is less likely to appreciate quickly than a home in a major city. Buy based on the trend in that location, not on the sticker price of the home. A deeply discounted property in a slow growing area is worth less than a more expensive property in an area with rebounding home values.
2. Spot “Ugly Duckling” Homes
Some houses are undervalued because potential buyers see the house as it is and not how it could be. Even though landscaping and painting are cheap investments, buyers will spend much more on a home with a pretty yard and new paint. Successfully flipping an investment home is about finding properties that have lots of positive features but need some inexpensive cosmetic work. For example, a house with a sturdy roof and good layout but a neglected yard is easier to fix than a home with an attractive yard but a leaky roof. Landscaping a yard could cost $5,000 but add $20,000 in home value when the buyer considers how much they would be willing to pay. Fixing a roof could easily cost $20,000 but adds little value — buyers do not expect to pay extra for a sturdy roof, but they are willing to pay more for attractiveness in a home.
3. Get the Right Furniture
When buyers visit your investment home, they will want to imagine how their lives would look if they lived there. Buyers will be turned off by rooms that are too crowded with furniture or have older items. Instead, fill rooms with a few pieces of furniture that are neutral, modern and accent the house’s features nicely. One investor put just a bed and nightstand in a bedroom — even though no one could comfortably live in that room, its purpose was just to help buyers imagine what their own bedroom would look like. Leasing furniture may be the most cost effective way to dress up a home: just return it to the rental store when the house is sold!
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