Years ago, someone once gave me several tips on buying investment property that served me well then and have continued to help me realize good returns now. So, I like to pay it forward where I can. That’s why the last time I saw Maria and she mentioned leaving her corporate job to become a real estate investor like me, I told her that once she was ready to take the plunge I’d make myself available for advice. I feel especially good about doing this when someone, like Maria, has a solid work ethic and a ton of passion for real estate. We’re meeting for beers later and this is what I plan to tell her.
Tips on Buying Investment Property for the New Investor
For anyone just starting out as a new real estate investor, it’s never a bad idea to get a handful of tips on buying your first investment property from a more seasoned investor. It can be humbling, sure—especially if you’re coming from another field in which you were at the top of your game. But, when you open yourself up to the experience and expertise of others, you increase your chances of realizing good returns on that first investment and on every property you buy thereafter. And, when it comes to succeeding in this business, the only way to grow a solid career is to build on one strong ROI after another.
To ensure that you’re armed with what it takes to succeed over the long haul as an investor, here are my top tips for buying houses to renovate and sell for the best ROI.
- Plan well. Before you buy anything, create a real estate investment business plan that clearly defines your goals and how you plan to reach them. This might include the minimum income you need to survive and support your family, as well as how many properties you hope to flip in your first, second, and subsequent years. You’ll also need to think about where you want to invest and what types of rehabs you’re willing to take on as you gain experience. Making good investment property decisions so that you can achieve the best ROI possible is easier if you decide on a direction early. Otherwise, you risk following the whims—and mistakes—of others, and lose potential returns.
- Buy low. It’s critical that you buy a property for as little as possible, while still giving the homeowner a fair deal. If you offer too much just to beat out your competitors, you could put a squeeze on your returns. Offer too little, however, and you almost guarantee the seller won’t give your number a second look. Keep in mind as you’re playing this balancing act, however, that a variety of other factors beyond the cost to rehab can, and should, affect your purchase price. If you have to clear the title, evict rent-controlled tenants, or bring a property up to code, your margin of profit—and room for error—can narrow considerably. So, be sure to evaluate all costs when determining your purchase price.
- Renovate right. When buying single-family homes as investment property, always consider the type of rehab you’ll need to perform to see the kind of returns you hope to achieve. There’s a big difference between major and minor fixers and, depending on how much you’ve paid for the property, your budget may not accommodate all that needs to be done. To determine if a property needs extensive repairs, like a modern electrical system and a new foundation, or just a few easy updates, like new paint and flooring, perform an inspection. For hard-to-reach areas, like the roof, you may even be able to use drones for the home inspection. What’s key is that you know what you’re getting into from the outset so that you don’t have to cut corners—or into your returns—when you renovate. If you know what to do and you do it right, your returns have a better chance of being right on.
- Insure enough. Knowing how to protect your investment property with the right insurance coverage, and making sure you do it, is an often overlooked component to realizing a good ROI. It can generally take anywhere from three to nine months to renovate a property and there’s much that could happen during that time that’s out of your control. Break-ins, vandalism, inclement weather, and natural disasters all happen to the best of us and, if your property isn’t covered when they do, you’re gonna be left picking up the financial pieces. You’ll also likely fall behind on your rehab as you scramble to finish the original repairs and the new ones you’ve acquired, increasing your costs further to hold the property longer. If you don’t have enough insurance, you may not see any returns.
- Sell high. When it’s time to sell your investment property, do all that you can to ensure the highest possible selling price that still reflects an appropriate after repair value (ARV). First, don’t market the property until the renovation is complete. Most buyers need to see the finished product to be able to fully envision themselves in it—and to justify the cost to buy it. Second, stage the home for sale. If you’re fairly confident in your design abilities, rent or buy inexpensive furniture to show each of the rooms in their best possible light. If you’re not, hire a designer to help you do the same. Yes, it can be expensive. But, it can also be worth it if you get top-dollar for your property.
Each of these tips is meant to increase the likelihood of seeing good returns on all of your investments as you continue buying, renovating, and selling houses. But, understandably, they can seem like a lot absorb and implement when you’re just learning the ropes. Luckily, with the right tools and resources, the process of investing for the strongest ROI can be made simpler. And, I’ll give you another tip: getting access to those tools and resources takes only one call.
The Right Tools and Resources Can Make Buying Investment Property Simpler
It’s been a long time since I started investing in real estate. But, I’ll never forget the independently owned and operated HomeVestors® franchisee who tipped me off on how to buy investment property for better returns when I was just starting out. His advice included the advice that I’ve shared here. But, it’s when he mentioned how certain tools and resources, like HomeVestors®’ proprietary analysis and valuation software, ValueChek™, make the process of evaluating deals a lot easier that he got my full attention. ValueChek™, for example, helps you review area comps, calculate the cost of over 80 different repairs, and estimate a property’s ARV. So, you reduce the chances of buying too high or selling far too low.
And, just by becoming a franchisee, you also get access to a Development Agent mentor and a network of other, regional HomeVestors® franchisees who can help make renovation recommendations, refer you to experts, and generally offer support. So, every investment-related decision you need to make doesn’t have to be made alone. Provided you come to the table with the kind of work ethic and passion that Maria has, that’s a pretty good recipe for success if you ask me.
Make the call that can make the process of buying investment property simpler. Get access to the tools and resources offered by HomeVestors® by becoming a franchisee today!
Each franchise office is independently owned and operated.