Okay, they’re not really smarter, but they do use certain strategies when choosing real estate in hopes of a good return on their investment. Wouldn’t it be smart to follow their lead when it comes to buying a home as well?
1. Smart Investors Don’t Get Emotional
Investors are emotional people, like anyone else, but there’s one thing that they don’t get emotional about (unless they’re noobs) and that is real estate. A smart investor is “cold-hearted” when it comes to buying a potential property because he simply views it as a vehicle for making money, nothing more.
An investor will look at the bottom line. Will this property make me money? Will it provide a positive cash flow, or can I strip equity from it? Simply put, if the numbers don’t add up, he walks.
To avoid a case of buyer’s regret when looking for your next (or especially your first) home, think like an investor. What appeals to your emotions may not appeal to your pocketbook. Emotions are fickle in nature as well. What was once a charming little cottage may soon become an overpriced, cramped headache you long to be rid of.
You will be paying for this property (unless you sell or pay it off early) for quite some time, so it’s important to take the long view when running the numbers. Things change – this is a fact, so make sure you leave yourself plenty of breathing room in the money department.If this means giving up your “dream home” for a smaller bungalow, do it – you can always upgrade when you have more cash to drop on another home.
Best case scenario – put a good chunk of change down, and buy well below appraised value, so you gain equity from the starting gate.
2. Buy With The End Goal In Mind
Investors chase markets. They will migrate their cash from markets which are declining, or under performing and move them to markets which are doing well.
As a homeowner, you may not wish to move every 7 to 10 years (an average market cycle), but if you buy well from the start, the market losses will have less impact on your investment – certainly not to the extent that many saw recently when they chose to walk away from homes they were upside down in.
3. Don’t Be Afraid To Renovate
Investors will run the numbers before buying a home in need of renovations. If they cannot obtain a good return on their investment in a reasonable amount of time, they will not buy the property.
Not everyone is cut out to be a “do-it-yourself” in the realm of renovations, but if you know how to handle yourself in the hardware store, you will be ahead of a great many individuals.
But let’s say you’re not comfortable with anything more than a bit of paint and maybe linoleum floor tile. That’s fine. If you’re buying a home that’s a “fixer-upper” the discount should be substantial enough for you to hire out the “heavy lifting.” Just make sure the numbers add up and you’re still in the black after everything’s said and done. If not, then walk away.
4. Smart Financing
Investors use various strategies when buying property. Some like to buy well, and then hold onto their investment for the long term before selling at a profit, while others like to buy property well, and then flip it within a short period of time. In either situation, a pre-payment penalty will not do as it obviously would eat into profits.
It’s critical to obtain an affordable home loan – one which has no pre-payment penalties and is affordable enough to allow you the option to pay it off sooner. Bankrate.com has a number of calculators which can help you run your loan through a variety of scenarios to determine how quickly you can pay it off.
5. Make Your Home Pay The Mortgage
One way that an investor will add value to a property and increase their profits is by adding a mother-in-law suite or “granny flat” to existing property (if local ordinances allow), which allows him to boost his rental return quickly.
Your tenant could end up paying some or all of your mortgage which can offset the expense of adding onto your home. While this is not for everyone, if your situation allows it, and the financials work out well, you could enjoy all of the benefits of a passive income without leaving home.