How to get more bang for your buck selling houses
Of all the wealth routes, real estate is
one of the most tried-and-true paths. People will always need a place to live,
and land is a relatively finite resource.
After the pain of the Great Recession, though, many doubted that we would see another boom anytime soon. However, the future is a notoriously hard thing to predict. The plunge in housing prices, which began in earnest in 2007, bottomed out in 2011.
From there, prices surged. By 2015, the average cost of a house in America had increased by about a third. Lately, the hot post-recession housing market has cooled significantly. While some fear another bubble bursting, it could also be a bear trap. After all, employment markets haven’t been this good in decades.
Plan on getting into real estate investing? If so, you must focus on maximizing the value of every deal you make. In this article, we’ll cover strategies that will help you get the most bang for your buck.
Should I flip houses or collect rental properties?
So, you’re determined to get into real
estate investing THIS year, come hell-or-high-water. The only question in your
mind: “Should I buy to flip or rent?”
It depends on the state of the economy. At the moment, real estate in America has appreciated considerably compared to 2011. Price increases in many markets have stalled. You should never ignore fantastic opportunities outright. But, generally speaking, it’s NOT a great time to scoop up rental properties.
Prices have flattened lately. In some markets, they have outrun the average buyer. If you pull the trigger now, you risk buying high. Should valuations tank, you could be saddled with negative equity.
If you want to get involved in real estate now, start by flipping houses. Unlike rentals, you can flip houses profitably in both buyer and seller markets. If prices are tanking, you may want to wait until they stabilize. But if valuations are stable, the improvements you’ll make will result in a higher selling price, no matter the economy.
Do you still have your heart set on buying rentals, though? Wait a few years. The stock market and economy are overperforming. Both are overdue for a tumble. Most experts expect a recession in the near-term. When the music stops, prices will plummet, creating excellent buying opportunities. Buy low, and you’ll maximize rental yields.
Maximizing value when it’s time to sell: a guide
Already have a portfolio of properties? There’s never been a better time to sell. Prices are at multi-year highs. At present, they’ve flattened out, which could be foreshadowing for a coming correction.
Right now, you need to focus on maximizing value for potential buyers. How can you achieve that? We’ll lay out five ways you can do that below:
(a) Get a home warranty for your rental properties
Of all the hassles that come with being a
landlord, repairing and replacing stuff tops the list. It steals your time AND
your precious capital. You might not even be a home repair expert. If your
repairs prove inadequate, star tenants may leave, making it even harder to
maintain consistent cash flow.
Getting a home warranty for your properties is an excellent solution for this issue. When appliances or systems fail, home warranties cover the cost of repairs or replacement. Apart from the monthly premium, you only pay a nominal service fee at the point of service.
For instance, take a look at this write-up on ReviewHomeWarranties.com. Their Homeserve review shows $515/year cost – chances are, that’s WAY less than the monthly mortgage payment on one of your properties.
Policies like these say two things to
potential buyers. Firstly, it means an investor won’t have to deal with the
hassle of repairing stuff or tracking down contractors. And secondly, it means
that the systems and appliances in your house are likely in decent shape.
As a result, having a home warranty can raise the value of your property by THOUSANDS of dollars.
(b) Pour most of your renovation budget into kitchens & bathrooms…
Of all the rooms in a house, the kitchen
and bathroom have the highest potential for value-adding renovations. According
to CNBC, modest kitchen remodels have an eye-popping ROI of 81%. They also report
similar numbers for bathroom renos. High-end remodels also have great returns,
with an average payback of 59%.
Because of this, experts recommend focusing at least 75% of your budget redoing these two rooms. Is the rest of the house in great shape? If so, focus nearly all of your capital on these two areas.
(c) …but pay attention to curb appeal as well
All the stainless steel appliances in the world won’t help if the front yard looks like crap. As such, set aside enough capital in your budget for landscaping and beautification projects. Think potted, hanging plants with bright flowers. Painting the door an attention-grabbing (yet tasteful) color is another tactic.
Above all, though, take good care of the front lawn. Feed it fertilizer and manure in the spring, and water it optimally throughout the growing season. Serious issues take time to remedy. If a yard has big dead patches, consider adding rock garden features.
(d) Try to do most renovations yourself
Adding employees to any operation is a big
decision. If they magnify productivity, they can skyrocket revenues. In a small
house-flipping operation, though, they may drain more revenue than they create.
Educate yourself on as many renovation techniques as possible. Adding people to the equation should always be a last resort. Avoid doing this unless you are utterly incapable of doing a task.
(e) Speed is key
In the house flipping game, the clock is
ticking the second you sign the purchase papers. Unlike rentals, YOU’RE the one
paying down the mortgage every month. Many flippers only have enough capital to
make several months worth of payments.
The faster you move, the fewer payments you’ll have to make to the bank, and thus, the more significant your profit will be. However, don’t sacrifice quality at the altar of speed. LEARN how to do common reno jobs FAST before buying. That way, you’ll get a better sale price, and you’ll minimize the probability of litigation further down the road.
Even small improvements can make a BIG difference
In house flipping and rentals, it’s the small things that create value. By investing capital and time in the right areas, you can maximize ROI when the time comes to sell.