Real estate is a fairly simple investment game in the long run. Buy a home, improve it and then eventually resell it. Although we are going through a rough patch in the market, this still holds true. Some homeowners can, however, make an unfortunate discovery regarding their home that can cause major financial problems.
Location, location, location. We all know the phrase. It is the first rule of real estate. Buy in a good location and it is hard to end up with a bad result. Buy in a bad location and it is hard to end up with a good results. Such is life and this is one of those clichés you definitely do not want to violate.
Although location is the primary rule in real estate, there is another one that comes in a close section. That rule says you should buy the worst home in the best neighborhood. For many people, this is the method to buy into a neighborhood that could not otherwise afford.
Once you’ve bought your fixer upper, you need to start doing just that – fixing it up! Redo the landscaping, bathrooms and kitchen. Add a room. Heck, add a floor! Wherever the home falls short, make sure you bring it up to the standard found in the neighborhood. This last part of the sentence is important. You need to bring it up to the level of the neighborhood, not above that level. This brings us to our unfortunate discovery made by homeowners.
America is the land of weekend warriors. While sports are fun, many a couple spends the weekend working on their home. Home Depot. Lowes. These stores are gigantic and cater to the do it yourself crowd. Yes, you! To a certain extent, this is a positive development, but it can lead to problems.
It is a story repeated over and over. A homeowner takes their home and does a major upgrade. Marble counter tops. New custom cabinets. The upgrades are beautiful, endless and…costly! Soon, the bills are adding up. They don’t cause you financial strife at the time, but you come to discover something very, very nasty. You can’t recover the costs of your improvements when you go to sell the home.
This is the unfortunate discovery.
Repeat after me! I will not spend more on improvements than I can recover when I sell the home. In fact, I will spend far less so that I can actually make a profit. Marble counter tops are nice. Put them in a mobile home, however, and you still have a mobile home worth the same amount of money.
This is an extreme example, but describes the problems you can run