Many real estate investors shy away from the ugly house business because they fear selling houses in a depressed real estate market. We have all heard the horror stories of real estate investors who lose their shirt because they get stuck with a property they just can’t sell or rent.
I am here to tell you that this does not have to happen to you, but there are nine rules you can never violate. Selling a house starts before you ever buy it. I start focusing on marketing strategies as I pull up in the driveway for the very first time, not after I purchased and renovated the house. Most untrained investors never focus on selling until after they have the property renovated and by then it is too late for most. Let me explain why in more detail.
Step #1 for selling a house starts with buying the right house that the majority of first time buyers would want to call home. The easiest mortgage money for a first time buyer to qualify for right now is for a FHA, VA or Conventional Financing. The good news is the down payments are low and the seller can pay most of the prepaid expenses and closing costs. The bad news is the buyers need good credit. Buyers with good credit scores are much more critical about the house they pick to call home. Real estate investors must be very selective with the homes they are buying, renovating and selling to ensure they can sell for a large profit.
So here is the list of my eight houses to never buy:
1. Never buy a house on a busy street because most first time buyers have pets or plan on having a family and they will not buy on a busy street. Inexperienced investors who can buy houses dirt cheap on a busy street think they are great buys but they are not. They are tough to rent and hard to sell.
2. Never buy a tiny house that is less than 1000 square feet. With a huge surplus of houses for sell right now, buyers have a ton of homes to pick from and the buy the bigger homes. Over 85% of the buying population wants at least three bedrooms.
3.Never buy a house with a small master bedroom. I will never buy a home where the master bedroom is smaller than 12 x 12. Most first time buyers already own the bedroom furniture. The furniture stores push the king size bed, huge dresser, amour, and two night stands for a low package price and that is what first time buyers purchase. If all these items won’t fit in the master bedroom of the house I am looking to buy, then I won’t buy the house at any price.
Many inexperienced investors struggle with this. I have made this mistake early in my real estate career and I got the privilege of making 14 monthly payments on a house that I couldn’t rent or sell because the master bedroom was too small.
4. Never buy a house in the war zone. Nobody wants to rent or buy in a high crime area. Contractors don’t want to work there either.
If you are new to an area and you are not sure about the crime rate contact your local police department and ask for the undercover detective that is assigned to that area and they will be able to provide you with the crime statistics for the area.
5. Never buy a house that is mixed use or next to a commercial area. Mixed use properties require substantial down payments of 20%-30% for financing which eliminates the majority of buyers. Remember you want your property to appeal to the masses not the minority. Most first time buyers don’t want noisy commercial businesses near their home. Stay away from properties near low income housing, high tension power lines, train tracks, and sewer treatment plants.
6. Be careful if you are considering buying a property with no garage. I have purchased 276 houses during the past 12 years. I actually went back and looked at how long it took me to sell houses with garages vs. houses without garages. My average holding period to buy, fix and sell a house with a garage is 121 day. My average holding time for homes without garages is 239 days. Yes, that is correct it takes almost 4 months longer on average to sell a property without a garage.
7. Never buy a house where you can not correct functional obsolescence. Examples would be a house with low ceilings, narrow stair case, bad layout, because the flow of the rooms is weird or tiny bathrooms or kitchens that can’t be expanded.
8. Never buy an entry level house in a flood zone because the insurance cost will be high. Most first time buyers are extremely sensitive to their monthly payments. The extra premium for flood insurance can make the monthly payment much higher than other houses in the same price range.
So what is left to buy you ask. As a seasoned investor in a depressed real estate market, I can tell you that I am being more picky about what I buy than ever. I am only making offers on two out of ten deals that come across my desk because I want to sell at lightning speed. The fastest properties to sell are four bedroom + houses, over 1500 square feet in great school districts with garages, formal dining rooms and big master bedrooms.
Robyn Thompson is the nations leading expert on buying, renovating and selling homes for huge chunks of cash and is known throughout the United States and Canada as "The Queen of Rehab." Over the past 14 years she has bought, fixed and sold 304 homes with price ranges as low as $8,000 to as high as $4,000,000. Robyn Thompson is a regular guest speaker at CT REIA. Go here for the current list of upcoming real estate investing seminars in Connecticut.