How to Safely Invest in Real Estate. Part 8

By
Real Estate Agent with Fore Properties

Now that we have narrowed down the field somewhat, we can begin to look at the actual houses. Our financial analysis isn't bulletproof. Some houses might look good on paper, but when we see them, we realize they are total dogs that only need a good coat of firewood and gasoline to fix. Like one of my old girlfriends who looked good from afar, but far from good. Some houses are diamonds in the rough, that simply need to be polished and refined by a wily investor.

Before you step foot into the first house, however, re-read "How to Safely Invest in Real Estate-Part 1". The first rule is, "Don't lie to yourself." Yes, you might be able to fix up this house, but can you do it within the budget numbers required to make it cash flow? Will the repairs add enough value for it to appreciate in this particular neighborhood? It is very easy for me to convince myself of things that I should not be convincing myself about. I am, after all, a very good salesman... The sad thing is that I never try to convince other people about a property, either for investment or to live in. On the contrary, I usually play the "devil's advocate". I am totally willing, however, to talk myself into anything, so I always need to remind myself to calm down, take a breath, bring somebody along, do something to harness my excitement over the prospect of making an absolute fortune on this one deal.

So what do we look for in our potential houses?

Curb Appeal

To begin with, I look at curb appeal or at least the potential for it. If two properties are the same in all other aspects, obviously the pretty one is the better choice. You can also make a big difference in a property's value without a lot of money by altering and updating the landscaping. Even just mowing or raking the yard can class up the place. Clean yards make clean tenants, too.

Fitness for Use

You wouldn't take a Ferrari 308 mud-slinging or drive an International Harvester to go on a first date. OK, maybe I would do both of those things, but I'm talking about normal people, not hopeless rednecks. By the same token, don't expect to see, or to install, granite countertops, 5 piece crown moulding, or hand-sanded Burmese Teak in a Section 8 rental house. In the same way, you need to look at your neighborhood and make sure you're keeping up with the Joneses , but not too much.

Structural Integrity

If the only thing keeping the house together is the fact that the termites are holding hands, then maybe you should pass on that "must-see-to-believe investment opportunity" that your ex brother-in-law's cousin told you about. Unless, of course, you are very handy and can get a great deal on it. I never inspect my houses. I always pay a licensed property inspector. The obvious reason is that they know what they're looking for and are not trying to convince themselves to buy this place. Objectivity is a beautiful thing. Structural integrity speaks to other issues as well, such as proper wiring, plumbing, etc. Pay the money up front for an inspector to save a boatload of money on the back end. There is another reason to inspect the house, which I'll cover in subsequent blogs.

I always have to tell myself that I am trying to NOT buy this house. That might sound odd, but then again, so am I. I know myself. I know that I have a tendency/weakness to see only the positives about a deal and none of the negatives, so I have to force myself to be a pessimist. Uncle Scrooge buys houses. "BAH HUMBUG!!" Tiny Tim sells them. "God bless this house and all who live in it."

Dan.

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