I read an article last month about how HGTV is turning up the volume on their home reality shows. In spite of the national housing slowdown, the network continues to thrive. In fact, over the next year they will be rolling out as many as 6 new shows, all geared towards reality real estate. Their target market? First time home-buyers and sellers.
If you’ve ever watched any of the shows then you’ll probably agree that it offers good entertainment and insightful information. Sure, some of it’s a little over-hyped and can be a tid-bit unrealistic, but hey it’s television what do you expect. Overall I give HGTV a good rating, their material is relevant and the people are entertaining.
OK, well it’s one thing to see it on TV and it’s quite another to actually experience it. Recently I’ve encountered an encouraging number of first & second time home buyers who looking for a “fixer”. Most say they want a home that needs a little work, but has lots of potential. Well, this excites me. I love the rush of finding a great deal, itemizing the repairs, running the numbers, negotiating the right price, and turning a profit. I’ve done many flip properties in the last 10 years, and I’ve had a great time with it. Not to say that it didn’t come without a fair share of headaches and costly mistakes…because it did, but experience has been my best teacher.
So here are a few things to keep in mind when buying investment property.
- Profit is made when you buy real estate, not when you sell. An old real estate mentor taught me this early on and it completely changed the way I saw negotiations. It’s true. The property will only sell for whatever a buyer is willing to pay for it, regardless of how good of a sales person you might be. Instead, if you negotiate a great deal in the beginning, and secure the proper spread then you ensure a profit on the tale end. However, if you paid too much for it up front, good luck trying to make it up when you sell.
- Set a budget up front and stick to it. One of the common mistakes new investors make is “over doing it”. I worked with a couple about 4 years ago who bought their first “fixer”. It was a great buy in Downtown Ogden for $45,000. I suggested they set a budget of $12,000 for repairs which was
more than plenty to complete what needed to be done. I knew that fixed up, the property would conservatively sell for between $75k-$80k. That would leave a descent profit of roughly $12k-15k after commissions & fees. Not bad for a 90-day project. Except, they got “remodel happy”. They replaced expensive items that weren’t in the scope. And if you’re not adding square footage, you’re not adding dollars. Well, they spent an additional $11,000 for a total of $23,000 and what’s worse is that now they increased the price to make up. Well after 8 months of being on the market, they finally reduced the price. They ultimately sold it for $75,000 and made only $500 in profit. - Don’t be greedy. Another costly mistake; trying to make a fortune on every deal. Set a profit margin and make it realistic. Too many inexperienced investors put their heart and sole into a project and then become attached. And emotions often add a skewed perspective to things. I would rather make a conservative 10% on every property and turn 10 more just like it before the year is over, than try to make 30%, end up with 15% and only do 1 or 2 properties. Not to mention the roller coaster ride along the way. “Turn it and burn it” as one investor use to tell me.
Well, I’ve got much more to share but it’s time to go to work. If you want to read that article on HGTV, click here
