Is 2022 your year to start investing in real estate? Maybe you’ve toyed with the idea in the past but never felt the time was right. Or you haven’t known enough about real estate investment to take the dive.
If you’ve started looking into it, you’ve likely already figured out that there are a lot of options out there. For example, you can be involved actively or passively in real estate — either owning and actively managing properties or earning passive income by investing in real estate someone else manages.
Let’s say you want to become an active investor.
How Do You Know Whether to Invest in New Property or Update an Older Home?
The answer depends on a lot of factors, just like so many other things in our lives. It depends on:
- Your expectations.
- Your real estate investment goals.
- The amount of money you have to invest.
We’ve all seen historic neighborhoods in quaint small towns where the houses have ancient stories to tell. They’re full of character and remind us of days gone by. It’s easy to dream about being lucky enough to get a great deal on a rundown home in an area like that, and then turn it around in a flash… for a five-figure profit, no less! But that’s not necessarily the norm.
It’s more likely that you’ll find a house, put a ton of work into it, find out that renovating takes a lot longer than you thought, and maybe even discover it doesn’t yield as much profit as you hoped.
But it could very well still be worth the investment… if you’re up for the adventure.
How Do You Know If You’re the Flipping Houses Kind of Adventurer or a New Construction Sort of Real Estate Investor?
⇒ If you’re mostly interested in closing the deal, getting tenants in as quickly as you can, and not dealing with a lot of maintenance for a few years, new construction is probably for you.
⇒ If you’re more intrigued by the idea of creating unique properties that have their own character and your touch, and you don’t mind taking the time to get the place move-in ready, you may be a fixer upper.
First Savings Mortgage points out the benefits of each:
- It’s ready for your tenants to move in, and you don’t have to do any extra painting or fixing up before they do!
- It’s got all the bells and whistles of modern technology.
- The design is up-to-date, and you won’t have to worry about upgrading again for a long time.
- You can likely get a good deal on a home that needs extensive renovations.
- You have a great opportunity to find something with character and bring it to life again – in a way that’s unique to you and appealing to renters.
- Your property taxes could be lower based on the price you pay for the home
When Should You Talk to a Real Estate Expert for Investment Advice?
When you’re trying to decide which direction to go, it’s a good idea to talk to a real estate expert who knows the market inside and out and can help you choose investment options that align with your goals while providing the most return on investment possible.
To get ready for the conversation, write down your goals for real estate investing. Think about the benefits listed above and decide which ones matter most to you. Be ready to talk about those, too.
Realtor.com provides some questions to ask yourself as you prepare for the conversation:
- Do you love repairing, renewing, reusing old stuff or would you rather just have something new that’s not likely to break down?
- Are you into vintage or does the sleekness of modern design appeal to you more?
- Do you like being able to see how much an older property has appreciated through the years or are you okay banking on a new home holding its value?
What Should You Do If You Buy a Fixer Upper?
If you’ve had the conversation, reviewed your goals, and confirmed you have the cash you need for investing in a fixer upper… and you’re ready for the adventure of watching an older home get new life, here are some things to keep in mind to make the process as smooth as possible:
- When you’ve found a potential investment property, do your research. Find out more about the neighborhood the home is in. Look up the value of other homes in that neighborhood, and plan to sell in that range.
- Choose a home that doesn’t need as much structural change – giving a home cosmetic improvement can be less expensive and less time consuming than a complete redo.
- To understand how much structural change is needed, be sure to bring in experts to inspect the home thoroughly. You’ll want to know exactly what you’re getting into, so ask questions to get all the information you need.
- Have a contractor give you an estimate on the remodel, then add 5 to 10% to be sure you can cover unplanned expenses that come up, and don’t be surprised when something comes up. Experienced renovators will tell you – it ALWAYS does! By planning ahead, you can keep those surprises from impacting your bottom line too much.
- When you know the estimated cost of the remodel, be sure you factor it into your negotiations for buying the property. Using your anticipated selling price, subtract the cost of the remodel to get to what you’ll offer for the property.
- Then stick to the budget. You want to give the home a fresh look but not improve the house so much it’s the most expensive one in the neighborhood. Keep it in your budget and in the selling price range you decided on up front.
Thinking about diversifying your portfolio with real estate investments? Our team at Gaskill Realty has the market knowledge to help you determine whether to buy a new home or renovate an existing one. Our property management services can also help you maintain the properties you’re actively managing. Reach out today!