We’ve talked a lot about what to do once you’re in a deal.
But it’s also important to know what you shouldn’t do. There are a lot of pitfalls and a lot of ways to lose money on a house. Most important, it’s critical to know your market. The San Diego market is different than the Dallas, Texas market. Buying a 2/1 in a somewhat distressed neighborhood is different than buying a place like the Tudor Street property. There are no rules for what to buy and what not to buy, but there are some pretty good guidelines.
Even in this market, you probably don’t want to buy in areas with very high days on market. Remember, you want to control as much of possible, and you aren’t making any money if your newly renovated project just sits around.
You probably don’t want to buy in war zones. This is a term a lot of real estate investors use. Maybe you can make money in some, and maybe you can’t. But I’ve seen houses I could buy back when I was doing business in Memphis, TN for 4-6 k. And, after putting 25 ish K into them, maybe they’d be worth 20. And that’s assuming all your new copper and fixtures didn’t walk off mid way through the renovation process. (I say new, because all the old copper had already walked off.)
You should be weary of buying a house with a pool in a regular middle class neighborhood. There’s nothing wrong with having a pool, but when it comes time to sell, you want to appeal to the largest group of potential homeowners. More people in these demographics don’t want pools than do. In addition, don’t assume having pool will add too much to your sales price. This guideline is one of the most subjective however.
Don’t buy a house without a master bathroom unless you’re renovating a 2/1. Homeowners like having a master bathroom. 3/1 houses are hard to sell. 3/2 houses without a master are also hard to sell. And in fact, they should probably be priced about the same as a 3/1.
Be careful of 2/1 houses. I actually renovated and sold five 2/1 houses last year and they went really well. But, the spreads we saw in Southern California 2/1 houses are rather unique. In the Southern California market, these can be good entry level houses, usually in borderline neighborhoods. In other parts of the country, these houses are just not that appealing.
There’s sort of a rule of thumb in the industry. If you want to buy a renovation or rental project, you should look for a 3/2 not on a corner lot and without a pool. This isn’t a bad place to start. The farther you venture from a vanilla project, the more risk you take on. Remember, you can make money on condos, and mansions. But the more unique a project the more you will bump into uncontrollable unknowns. Those things can cost you a lot of money.
