Increase your Net Worth the Day you Buy a House
Three months ago I got an email about a house that came on the market that day, in a neighborhood that I have been immersed in for a client. I was on my way to my Sarasota office on Interstate 75 at around 8:30 in the morning, so I was not by a computer and certainly was not in the area. I knew where the house was, however, and while I had driven by it many times, I had never seen the inside. I called one of the Better Homes and Gardens Real Estate agents that I know would be on a computer and asked her to check the assessed value and a few other details. I then called my client and told her I had a deal that I thought we should buy. By 2PM we had the house under contract with a 90 day close (the seller wanted a longer close).
That closing is tomorrow and this house will be worth 30% more that my client paid for it on the day she closes on it. There are a number of reasons for this and the 90 day closing really worked in her favor because the market has really heated up lately.
I’m not here to tell you can increase your net worth the same day you buy a house or that these deals happen on a regular basis, but there are things you need to do to get ready for the time when a deal does show up on your plate, and I have put some tips below. (You can also read an article I wrote a while back called Courting Chance – on how these things happen not because of luck, but because of preparation).
Sometimes you have to kiss a lot of frogs. This week I have looked at over a dozen potential investments for this client and none of them were exciting enough to make offers on. That day, however, three months ago, we were ready.
Here are some things you can do to get yourself ready:
- Pick a territory. The territory should have “good bones” and be trending up in quality and therefore price. By “good bones” I’m talking about crime rates, infrastructure, transportation, location and demand.
- Always be looking. Check daily on new listings. See them the first day. The good deals are gone very quickly. Drive or walk through your target terror frequently. Stop in on garage sales, ride your bike, and walk you dog in the area.
- Become an expert in that territory. Know every house on the market, what has sold, and take a tour of them all. Then when you see a house new to the market you will know what is a good deal or not
- Find a good AVM and use it. An AVM is an automated valuation model. I have installed one for our clients to use. I’ve gone through a few but this one is my favorite (AVM HERE). Keep in mind that these valuation models are done by a computer, so you will need to refine the value, but the link I gave you will also give you neighborhood info. A decent AVM will give you a jumping off point. After a while YOU are going to know the territory better than any computerized model.
- Rental rates. Know them in your territory, call on homes that are for rent. Talk to the landlords and see the inside if you can
- Don’t be afraid to make offers. An ask price is just that, an ask price. And it is rarely firm.
- Know the difference between an income approach to an investment and an asset approach (Article here). Remember you are going to make a return while you OWN the property, and another return when you SELL it.
- Buy distressed property. This does not have to mean physically distressed. The house could be in great shape, but it is the seller that is distressed. Financially, time wise, a divorce, or an estate.
- Timing is everything. Be prepared to move quickly, but also know that conditions change. A house that has been on the market for a year might deserve another look. The sellers may have finally found the house they want to buy and be better motivated, or his or her financial condition may have altered his motivation.
- Read my investing rules – just to brush up on some other tips that may help you.