Buy the ugliest duckling in the nicest pond
Since the beginning of time, people have always been able to negotiate and buy things on sale. Even Jacob bought Esau’s birthright on the cheap, for a simple bowl of beans! Jacob made a killing on his investment!! Whether you’re looking for an investment opportunity or the next place to call home, real estate can be a profitable investment. With interest rates so low in 2016, many people are looking to buy a house or buy more rental property. How and where you buy can prove to be your worst nightmare or a profitable endeavor.
Whether you think real estate is a good or bad investment, the principles of investing are the same, buy low and sell high. One of my favorite quotes from the Oracle from Omaha, Warren Buffet, is “Be fearful when others are greedy and greedy when others are fearful.”
Stock market example
Disclaimer: I’m not telling you how to invest, there’s many tax implications and stock market analysis you need to consider, consult your financial adviser and your accountant, I am neither.
When the stock market is crashing (like in 2008) and others are fearful, be greedy and BUY stock. Contrarily, when others are being greedy (buying loads of stock and pushing stock prices higher) SELL the stock.
How does this apply to buying a house?
“Be greedy when others are fearful” -> BUY the house other people look past
“Be fearful when others are greedy” -> SELL the house when more people move to the area, demand increases, and house values go up
Buying the “ugly duckling” house
There are a variety of ways to buy the “ugly duckling” house. Some of my favorite are foreclosures and neglected houses. Before I go further, I want to stress that the location of the house is the first thing you need to consider. Get the ugliest duck in the nicest pond! A “nice” house in a bad location is a bad house, so always make sure you’re in a good location.
Second, creativity and imagination are tools you’ll need to turn that ugly duckling house into a beautiful home. Being able to look past that shaggy carpet and 1960’s wallpaper is what will separate you from the fearful.
A house can be foreclosed on for a few reasons, but mainly because the home-owner doesn’t pay their mortgage, or doesn’t pay their taxes. In this event, the bank or county will auction off the house on the counties’ courthouse steps. This is where some serious discounts can occur, because you can bid on some great properties for sometimes half the price. Why don’t more people buy at auctions? The reason is that you have to pay with cash on hand! No mortgages or taking 30 days to call your relatives to gather the money, you have to show them the money!
When the bank doesn’t get their asking price at auction (because no one meets the asking bid), the house will typically end up on the MLS (like realtor.com) and is available to be sold to the general public. This process will be similar, everyone submits offers and the bank decides who they will sell it to. In this case,though, most of the time you can purchase the home using a mortgage (loan through a bank).
Why are foreclosures cheaper? Well, think about it, who doesn’t pay their mortgages? People that don’t really care about their house. Generally, these type of people don’t provide their home with general maintenance and upkeep, leave their yards unkempt, and don’t fix broken things in their house. So, be prepared for some manual labor and the ability to see diamonds in the rough.
I have purchased two foreclosures in the past that I found on the MLS and bought them for about 35% less than the market value. I later sold them and put the profit towards my freedom fund.
These type of homes are a little easier to find, they’re usually on the market for longer periods of time for specific reasons. Neglected homes will normally be outdated and have horrible curb appeal. These are some of the best homes to pursue, if you have some imagination.
Have you ever watched HGTV shows like Fixer Upper or Flip or Flop? What you’ll notice is that the designers always spend time and money in the kitchens and bathrooms. I’ve personally looked at hundreds of homes and I’ve seen that kitchens and bathrooms are what sell homes. So, if you see a house that has been on the market a while, it’s most likely because of outdated kitchens and bathrooms, so view that as a BUYing opportunity!
The second biggest turn-off for buyers is bad landscaping. As a realtor, I’ve showed houses before, and we drove off just as soon as we drove up, because there was no curb appeal. People with no imagination can’t envision coming home to a yard that’s not inviting. For that reason, many homes will remain on the market, so be sure to target those BUYing opportunities as well.
The home we’re currently in is a perfect example of how we used these principles. Our current home had mud all over the front AND back yard, no grass or fresh sod. When you walked in the front door, two walls blocked the view to the kitchen, dining and living rooms. Laminate covered the kitchen floors, original 1990 appliances and dark cabinets gave a dated and closed-off feeling as well.
Long story short, we painted the cabinets, replaced the flooring, counter-tops and appliances to give a fresh look to what is now our dream kitchen! We also knocked out two walls to connect the rooms and make the space feel so much bigger. I’ll go into detail on another post about ALL of our renovations for our current house. Many people looked past the house we bought because it was outdated and neglected. But we looked past the ugly ducking and saw the swan that just needed some TLC.
I hope this demonstrates that whether you buy a foreclosure or just a neglected home, there are opportunities to save big by buying the house no one else wants. With some creativity and a willingness to work hard, you can turn that ugly duckling into a profitable investment when you go to sell it!
Have you ever bought a foreclosure? What are some renovations you’ve done that have brought up the value of your house?