Selecting Properties

CONTENTS

I.   Buying Homes for Your Own Immediate Use

II.  Buying Homes to Fix Up for Profit

Introduction

Knowing what consumer preferences will be in a few years when you expect to be selling is a wonderful kind of insight if you have it, but few buyers do.  What you can do, however, is make sensible projections based on population demographic change which we all know is coming, such as the movement of the “Baby Boomers” through the stages of life.  Right now Boomers are past the peak of their need for large homes, to accommodate their most active years of child rearing, but more and more Boomers are now moving into middle and late-middle age, where they are looking to downsize in terms of home size, numbers of bedrooms and bathrooms, etc. due to their retirement.

Florida being such a strong destination market, however, the demographics of transferees is a large factor.  Transferees to the East Coast of Florida tend to come from the Eastern Seaboard, while transferees to the West Coast tend to come from the mid-west, rust belt.  The economic differences because of this one simple fact are easy to recognize.  Sales on Florida’s East Coast have been hurt by the recent economic slump in housing, but no where nearly as much as has the West Coast.

I.   Buying Homes for Your Own Immediate Use

In choosing a property for purchase, Buyers should be very honest with themselves about their needs and expectations.  To what extent are you concerned with the ultimate value of your new property as an investment?   If investment value is an issue at all, it will likely change the criteria by which you judge properties.

First of all, the experienced property investor realizes that it’s not the biggest, nicest homes in a neighborhood which have the most potential over time for appreciation, it’s the smallest, most humble homes.  The most expensive home in a neighborhood has it’s value pulled down by the rest of the neighborhood, while the cheapest home’s value is pulled up by it’s neighbors.  Part of the reason for this is that most buyers look for homes in neighborhoods that are generally within their budget.  If they have a larger budget, they tend to look in nicer neighborhoods, but where a fair percentage of the available homes are within their budget.  If maximizing their appreciation were the largest issue, they would look at neighborhoods that they generally couldn’t afford, but which might have one or two lower-end homes that are within their reach.

On the other hand, if your personal use and enjoyment of the home over the time you reside there is the largest factor, you might shop for the biggest, best house for your use (however you might define that) for your budget, without much regard for whether it represents the high end or low end of the subdivision in which it is located.

You can see that those are two very different ways of looking at property, but when it comes to appreciation, they can make a very big difference over time.

II.  Buying Homes to Fix Up for Profit

This is the strategy of “flipping,” which is taking so much of the blame for the current downturn in the housing market.  This had become so trendy that there were literally dozens of television shows on flipping homes, with endless pointers on fixing up property for resale.

To put it in the simplest terms, the difference between a great buy for fixing up for resale and a poor choice boils down to whether the repairs that are needed are “pretty” or “ugly.”  A home that is structurally sound and doesn’t need anything but cosmetic improvements, i.e., spending money to “pretty” it up, is the greater value from this perspective.

The poor choice is the home which, though you don’t necessarily see it when you first look at it, is going to need a lot of “ugly” money spent on things that don’t show, such as structural repairs, electrical, plumbing, heating and air conditioning, roofs, etc.  The dollar for dollar return on improvement to curb appeal is low on these homes.  These homes will take the longest time off the market while you’re doing all that “ugly” repair work, and they won’t appreciate in the short term for the average buyer.

To the extent that your motives in buying are “mixed,” that is, you want the home to live in, and intend to fix it up to suit your own needs, but still consider it important that you make a gain when you get around to selling, you should still be aware that some improvements to homes earn more return on resale than others.

Added or upgraded features that can be relied upon to improve resale value more than the cost of the upgrade includes enhancements to kitchens, adding or upgrading bathrooms, and sometimes adding bedrooms.

On the other hand, adding a swimming pool seldom returns significantly more appreciation than the cost of construction.  The same is generally true for fireplaces and other items that are normally thought of as “luxury” items.  You may still want to add these items for your own and your families use, but don’t think you’re necessarily making a great investment in your financial future by doing so unless you enjoy some special advantage which permits you to add these features more cheaply than .