We’re house hunting – again!
Anyone else wildly obsessed with the process? Tracking the market, touring properties and seeing their potential is all so exciting to me! Now, the negotiating, inspections, appraisals and waiting (so much waiting!) – that’s another story.
In case you missed the big news, we sold the Edgmon Ranch and are once again on the hunt for another investment property.
Best case scenario is to simultaneously buy two properties. The first we’d move into and renovate at a comfortable pace, and the second we’d renovate and sell more quickly. But as I mentioned a couple of weeks ago, we are considering our options.
Whether or not a property is worth the investment is such a personal choice, though. Design preferences, resources, your comfort level with risk-taking, connections, level of expertise, the local market, the economy, etc. etc. etc. are all factors that dictate whether or not a property is right for you. This will be our third fix-and-flip house, so our wish list likely looks quite different than that of someone hunting for their first.
Let’s dive into the list of qualities we look for in an investment property!
I could give you 101 cliche quotes about the importance of location, but I’ll spare you. I will say, however, those quotes wouldn’t be cliche if they weren’t true!
Location is among the most-important factors for us when house hunting. Although we’ve previously had success with an investment property that wasn’t in the best of locations, it is definitely an exception rather than the norm.
A well-established neighborhood, proximity to certain amenities and quality school districts are all qualities we look for in a home. These factors often result in higher ARV (after-repair value).
Ideally, we want a property in need of mainly cosmetic updates in a good, established neighborhood. That brings me to my next point…
2. Not the best house in the neighborhood
You’ve likely heard of yet another real estate cliche, “Buy the worst house in the best neighborhood.” There are many avenues for maximizing ROI and building equity, but this rule of thumb is a safe bet for a reason.
We tend to look for properties in need of mostly cosmetic TLC with clear value-add potential. Usually that includes a combination of a new kitchen, new bathrooms, new paint, new lighting, new flooring, etc. The overarching point is to focus on properties that are in clear need of an update – otherwise we risk over-improving and, thus, cutting into our profits.
Being the perfectionist that I am, I tend to struggle with this limitation the most; “good enough” is not high enough of a standard for me, so the husband always has to reign in my wild (costly) ideas. That is why we make a great team, though. He’s the logical one with a clear focus on the financial aspect, and I’m the dreamer with 101 ideas for making a property perfect.
3. Good structural integrity
Regardless of the age of the property, we want to avoid structural damage because those sorts of repairs can quickly drain the entire budget. Houses with foundation issues, cracks, leaks, uneven floors, etc. are all red flags.
That’s not to say there are no exceptions. Take our bungalow, for example. It was built in 1930 and had stood completely abandoned for 20 years prior to us purchasing it. To say that it was not in a livable condition would be a major, major understatement. But generally speaking, most fix-and-flips rarely include gutting the entire house down to the studs.
We also check on big-ticket items, like the roof, HVAC, water heater, etc. While they’re not necessarily cause for concern, it’s important to weigh the replacement cost versus the potential ROI.
4. Functional floorplan
In an ideal scenario, we’d want a house with a floorplan that makes sense. Moving or demoing walls, relocating plumbing, etc. all equates to lesser profits.
This is not always possible, though, because a lot of older homes have very closed-off floorplans. Modern-day buyers, however, prefer open living areas. So it’s hard to entirely avoid tearing down a wall or two.
Other floorplan details that are desirable to us include a good bedroom-to-bathroom ratio, master bedrooms with ensuite bathrooms, single-level floorplans, a minimum of three bedrooms and large, preferably walk-in, closets. Again, these are all wants rather than must-haves.
Extra square footage is also a bonus, whether that’s a flex room, an office, playroom, etc. Best of all is when a property has an unfinished basement, which could increase total square footage for a significantly lower cost than, say, building a new addition.
5. Tall ceilings and lots of natural light
These two qualities tend to go hand-in-hand, because houses with higher ceilings typically have larger windows. Some properties will have large windows but standard ceilings; even that is great because it makes the space feel much bigger and more open than it really is. Our bungalow was a perfect example of this. Only the living area had slightly higher-than-average ceilings (they were 9′ I believe). The rest of the house was standard; the back of the house (which was an addition in the ’60s) was even lower than standard. But because we had opened up the layout as much as possible and doubled up on the windows in some areas, the house felt quite spacious despite its 1400+ square feet.
Taller ceilings and bigger windows often equate to more expensive houses – if only because they require higher construction costs. So if we’re aiming for a house in a higher price range, those two qualities are very desirable.
6. Good yard – or the potential for it
The land that a house is on is often just as important as the house itself. Many home buyers are looking for options that include a large yard. Therefore, this is something you should consider before making any purchases. It can also be helpful to do some landscaping to improve the appearance of the yard so that potential buyers are better able to envision themselves spending time there enjoying nature.
The land that a house is on is often as important as the house itself. We prefer properties with larger-than-average, level lots because, obviously, that’s what buyers want. However, we’re not afraid of a little hardscaping, either. So, if the property can be made more appealing with a retaining wall, we have the equipment and experience to tackle such a project.
Fencing and landscaping are two more items that can positively influence a property’s future value.
7. A purchase price that makes sense
Possibly more important than any other item on the list, the purchase price of an investment property is going to largely dictate the profits. For this reason, we often turn to foreclosures, distressed properties, auction homes and REO (real-estate owned) properties. We take our time in calculating the cost of repairs and any additional carrying costs, making sure we’re comfortable with the margin when it’s time to sell. We also spend extensive time researching comparable properties to understand what’s selling in the immediate area, and comparing the size, location, quality, etc. Ultimately, we always consider the worst-case scenario to make sure we’re covered.
Well, I’ve covered the basics, but I’d love to hear from you: What qualities make for a good fix-and-flip potential?