subject: Investing In Houses The Old Way. Remember location, Location, Location? [print this page] The housing bubble that happened in recent years made a lot of people think they knew how to invest in houses.
Flippers went out and bought some house they could afford, regardless of location. Then they put in all the granite and SS buyers could want and made it look new. They spent a lot of money doing these things, too. They felt confident they could put a significant amount of money into a remodel, pay a lot of interest on credit and still sell the house for more than they had in it.
Appraisers went along with it, too. They didnt usually get in the way of a sale. If a legitimate offer is on the table from a buyer with a loan approval why shouldnt they go along with it?
Real estate agents and lenders and banks all went along with it, too.
It created artificial value, not real value.
But investing in houses used to be different.
People would look for a house in the perfect neighborhood, usually one close in to a city with great schools and interesting houses.
They were looking for a home they planned to stay in for some years. They were also looking for a specific area close in so their commute would be short.
These houses are typically older and in need of a lot of work, including plumbing and electrical and maybe even structural.
But the buyers were investing in a HOME, not a place they intended to sell again before the signatures were dry on the closing papers.
Houses were actually less disposable. They were purchased and lived in as real homes, not primarily as questionable investments.
For a while the investments paid off pretty wellin some locationsbut not everywhere, even during the boom.
Many flippers failed miserably. There were lots of reasons why.
1. They made poor decisions about locations.
2. They were over extended financially.
3. They made poor decisions about what remodeling projects they tackled.
4. They over improved for the area, spending money the values in the neighborhood did not support.
5. They tried to flip houses in locations that never experienced a housing bubble at all.
But people still have to live somewhere. Rentals may become more expensive with increased demand.
Real estate values will continue to be impacted with the reality that fewer buyers can qualify for loans or save up substantial down payments.
But great houses with special locations are still attractive to discerning buyers who plan to stay awhile and not buy up quickly.
Sellers who are in these special locations and have significant equity may be able to attract the best buyers who are stronger financially than most people. They can also offer owner financing.
If this describes you heres what to do.
Get a significant down payment, charge enough interest to give you some income, and let the buyer establish a good record of payment.
You could be in the enviable position of offering for sale a note someone might buy instead of a house someone might buy.
Real estate is different now than it used to be, but maybe its saner. There is real value in making a home instead of making an investment in something you have to sell to actually realize the investment.
A good definition of a good investment is that it generates income. Its reality. Lots of investments that we have been relying on dont generate income until later.
Later is just too insecure. Income should be a requirement for investments.
