Finding Your First Investment
Buying a single-family home is a great way to start your real-estate investment career. Why should you go with a single-family residence? Because they are generally the properties in most demand, which in turn makes them the easiest properties to sell. Let's walk through a typical scenario, in which you've researched the market in preparation to buy a single-family home.
Let's say your market research shows that senior citizens make up a large portion of the buying pool in your town. They likely want a house that's not
Local agents have advised you to look for a house with no steps — or just a few. Even seniors who aren't bothered by steps yet are looking for one-level living with a minimum of stairs to climb. That eliminates split-foyer homes, homes where you must climb high porches in order to enter the front door, and homes with finished living areas on two levels.
Most seniors want a house in move-in condition. They don't want to paint or make repairs. That's where you step in. Your goal is to find a house that's structurally sound and has the required features but that needs cosmetic updates. If you can't find that type of house at a bargain price, you might need to look at houses that need a little more work, but for this first purchase, steer clear of anything that involves structural repairs unless you are an experienced builder.
Lenders offer lower interest rates and down-payment terms for owner-occupied homes, so moving into the investment property could save you money. If you live there for two years or less, you won't even owe capital gains taxes when you sell it. Many investors move from house to house, increasing their gains with each sale.
You've talked with enough real-estate agents to know that hardwood floors are very popular and that seniors in your area prefer gas fireplaces to the wood-burning versions. If you can't find a house with those features, you plan to add them. You have a good idea of the house you want to buy, so now it's time to start looking.
Scout Out the Neighborhoods
Your ideal find is a slightly rundown house in a desirable, low-crime neighborhood close to shopping, hospitals, and other services. Ask an agent what's for sale in neighborhoods that fit that description, and get copies of multiple listing sheets so that you'll have addresses and detailed information about the homes. Don't just drive by those houses — browse other streets in the same neighborhoods to find “For Sale by Owner” (FSBO) properties that agents won't mention.
Tour the Properties
Make appointments to see the most interesting properties. Take notes about interior and exterior components. List the most desirable features of each house. What updates are required? A total kitchen revamp could be costly, but maybe you can get by with painting or staining the cabinets and adding new countertops. New flooring and paint can do wonders, and so can opening up spaces between rooms. Each home will present you with an entirely different scenario of possibilities, and it's up to you to determine which ones will bring the most return when you sell or rent the property.
Who Else Will Like the House?
Seniors may be your primary target, but they aren't the only buyers out there. Will the house appeal to other age groups — young couples or families with children? You've already looked for a location near local services, but throwing a good school district into the mix will give you more options when it's time to sell or rent.
Making an Offer
You've found a house and want to make an offer. You've already talked with a lender, and you know you can qualify for a loan before you sell the house you live in. The resources in Chapter 7 will help you determine value, and other chapters will walk you through negotiations and contracts.
