- Jan 21, 2020
- 83
- 35
A lot of people have heard about Rich Dad Poor Dad and how your house is not an investment.
I disagree. Your house is probably not an investment. But your next house could be.
This is because houses do appreciate in value. If you have any doubts of this just get on Zillow.com and look around. I actually recommend looking at houses even if you're not in the market to buy one yet.
A lot of times people get a real estate agent and wait for that person to send them houses to say yes or no to. Not me. I always find houses much faster using the internet. An agent is going to send you houses based on the information you give them.
They're not even allowed to weigh in on certain factors, like the neighborhood, schools, etc.
Zillow will tell you 80% of what you need to know. It can't really tell you what it's like to live there and what your property value is going to be based on crime and so forth. But it does estimate numbers based on other sales which do take these things into account.
In investing you're simply trading a commodity. Everyone has heard "buy low, sell high". It's the most obvious thing in the world and yet...
do we really do this? Think about the shoes you wear? The clothes. The cars you drive. Do we buy low and sell high? Or are we a consumer economic slave class because we work just like they do but we buy high trying to prove our own value. And it's not smart. I think part of the reason there are very few real conversations about economics is because our culture is plagued by us thinking it's "cool" to do the opposite, financially, of what we should be doing. We put ourselves in worse economic conditions because we fail to manage our money wisely and so our money ends up managing us.
When we buy shoes we don't think "what can I do to these Nikes to make someone else want to pay more for them than I did." We simply buy shoes to wear and they become our personal property. They don't appreciate in value and it doesn't really matter because we're not going to sell them. We're used to buying things that we're going to use but things that we'll keep. And maybe we'll horde all these things. Every once in awhile you see someone having a garage sale. That's good.
But let's get to the point.
Most of us buy a house to live in. We find something we like and can afford. We often use the same consumer mentality we buy everything else with. But you should look for a house that:
1. is listed at or below its value
the more you pay over what the house is worth the less you'll make when you sell it. You'll never get all your money back because banks have you pay mostly interest at first and more principle years in. And you always lose money in the purchase sale because you have to pay for agents and other things.
2. has been sitting on the market for awhile
if its listed below value and brand new on the market there is a chance it is done this way on purpose to bait people into a bidding war with multiple offers. In many cases the seller can come out with more than what the house is worth because of how people fight over it. This doesn't mean don't go after a house that just came on the market. It simply means that the price may be too good to be true and you'll end up paying more than you want to spend. And while you're tied up on one offer, someone else is taking the more reasonable deal that you should have taken. Even if a property is listed too high, if its been on the market for a long time then they may be willing to take a low offer. Buy low. Sell high.
3. decent neighborhood
if you buy a house in the hood chances are... the people with more money to spend, and therefore more likely to pay above asking price, are not going to want to buy your property.
4. decent schools
This isn't as important as #3 but many people who buy homes are families, either with kids, or kids on the way. You have to buy a house other people want.
5. structural & amenities
high ceilings, sky lights, vaulted or cathedral ceilings, jacuzzi tubs, sit down showers, granite counter tops, hardwood flooring, these are all things that people are looking to enjoy and boost the value of the property. If you add something yourself, you can get the money back for it when you sell; as long as it appraises close enough to what you're asking.
6. HOAs
Many HOAs have swimming pools and other things that they charge everyone who lives in the neighborhood for. While this is nice, it increases the monthly cost of the property. In most cases, you could get a bigger/nicer house for the same monthly cost of something smaller where you have to pay an HOA. However, if the HOA is low cost it could be beneficial in helping to keep home owners following rules to help maintain everyone's property value.
When home owners make mistakes in selling they often inflate the value of their home early on. Often, listing agents tell them they can sell it for more money but that only works if a buyer isn't educated or isn't looking at it as an investment. But often times they're wrong, and you'll on zillow where they keep lowering the price. Each time they lower the price they signal their mistake and signal to buyers that they're willing to entertain lower offers. If only one offer is coming in, that offer can be low. If there are multiple offers it wont work so you have to come in, at or above asking price if you really want that house. With homes that have been on the market for awhile, if you time it right you can get an offer in after a few price drops. Eventually, the seller may get upset their house hasn't sold and switch agencies. When this happens the price goes back up; not as high was the previous company, but still more than you want to pay and more like what the owner wants to make on it. So you have to be strategic. This process isn't likely to happen more than twice. If the first agency doesn't work and house has been on the market for over 80 days that seller may be a lot more willing to sell at a lower price.
You can often see, using Zillow, how much as seller is trying to make off their property. You can decide how reasonable you think they're being based on what they paid for it and how long ago it was. Many sellers list around $30-40,000 more than what it cost them to buy it. However, some sellers, especially if there have been updates, will try to make $60-100,000 over what their bank loan was for. Again... buy low sell high. There just might be a whale out there who will pay that high asking price.
One thing I've seen with new construction, especially, is that a builder will sell a house to someone and its basically their dream house and so they pay big money without necessarily thinking about who's going to buy it after. When it comes time to sell, they can't get anyone to pay more than they paid and sometimes they might even lose $10,20, even 40,000 in the process. And part of that is because when buyers agents talk about cost they're not wanting to recommend paying way above what other houses in the neighborhood are worth. Because when its your turn to sell, that house is going to get compared with other similar houses close by, not the same type of house in a whole different area where the property values may be naturally higher because of better schools and businesses.
The other big problem is appraisal. If you pay a million dollars for a house only worth (appraises at) $500K, even if one bank allowed you to do that, another bank may not give a buyer much more or any more than the appraised value. The sale can still happen but that person has to pay the difference out of pocket. And if they're not rich or in love with your house (when there are others they can buy without dropping extra money on) there's simply no reason they would do this. And so many expensive houses end up in foreclosure or short sales.
Picking houses should be done like picking stocks. And yes, I know many of us don't pick stocks either, but that needs to change. I'll be starting another thread about the stock market as well.
You should always like what you're buying. However, you should always see the potential, not simply for what you personally want, but what someone after you will want. Houses with crazy colors or wallpaper can put off potential buyers. But, if you can stomach a few things like this initially, and buy that house that's been sitting for awhile, and at just the right time when the listing price has dropped and owner is willing to lose some of that potential profit, then you could come away with a property that's worth more than you paid, even on day one, and a property that you can put a little work into and get someone to pay even more. Or... if you're strategic enough, perhaps you can even cause a bidding war yourself. But always remember...
Buy low sell high.
I disagree. Your house is probably not an investment. But your next house could be.
This is because houses do appreciate in value. If you have any doubts of this just get on Zillow.com and look around. I actually recommend looking at houses even if you're not in the market to buy one yet.
A lot of times people get a real estate agent and wait for that person to send them houses to say yes or no to. Not me. I always find houses much faster using the internet. An agent is going to send you houses based on the information you give them.
They're not even allowed to weigh in on certain factors, like the neighborhood, schools, etc.
Zillow will tell you 80% of what you need to know. It can't really tell you what it's like to live there and what your property value is going to be based on crime and so forth. But it does estimate numbers based on other sales which do take these things into account.
In investing you're simply trading a commodity. Everyone has heard "buy low, sell high". It's the most obvious thing in the world and yet...
do we really do this? Think about the shoes you wear? The clothes. The cars you drive. Do we buy low and sell high? Or are we a consumer economic slave class because we work just like they do but we buy high trying to prove our own value. And it's not smart. I think part of the reason there are very few real conversations about economics is because our culture is plagued by us thinking it's "cool" to do the opposite, financially, of what we should be doing. We put ourselves in worse economic conditions because we fail to manage our money wisely and so our money ends up managing us.
When we buy shoes we don't think "what can I do to these Nikes to make someone else want to pay more for them than I did." We simply buy shoes to wear and they become our personal property. They don't appreciate in value and it doesn't really matter because we're not going to sell them. We're used to buying things that we're going to use but things that we'll keep. And maybe we'll horde all these things. Every once in awhile you see someone having a garage sale. That's good.
But let's get to the point.
Most of us buy a house to live in. We find something we like and can afford. We often use the same consumer mentality we buy everything else with. But you should look for a house that:
1. is listed at or below its value
the more you pay over what the house is worth the less you'll make when you sell it. You'll never get all your money back because banks have you pay mostly interest at first and more principle years in. And you always lose money in the purchase sale because you have to pay for agents and other things.
2. has been sitting on the market for awhile
if its listed below value and brand new on the market there is a chance it is done this way on purpose to bait people into a bidding war with multiple offers. In many cases the seller can come out with more than what the house is worth because of how people fight over it. This doesn't mean don't go after a house that just came on the market. It simply means that the price may be too good to be true and you'll end up paying more than you want to spend. And while you're tied up on one offer, someone else is taking the more reasonable deal that you should have taken. Even if a property is listed too high, if its been on the market for a long time then they may be willing to take a low offer. Buy low. Sell high.
3. decent neighborhood
if you buy a house in the hood chances are... the people with more money to spend, and therefore more likely to pay above asking price, are not going to want to buy your property.
4. decent schools
This isn't as important as #3 but many people who buy homes are families, either with kids, or kids on the way. You have to buy a house other people want.
5. structural & amenities
high ceilings, sky lights, vaulted or cathedral ceilings, jacuzzi tubs, sit down showers, granite counter tops, hardwood flooring, these are all things that people are looking to enjoy and boost the value of the property. If you add something yourself, you can get the money back for it when you sell; as long as it appraises close enough to what you're asking.
6. HOAs
Many HOAs have swimming pools and other things that they charge everyone who lives in the neighborhood for. While this is nice, it increases the monthly cost of the property. In most cases, you could get a bigger/nicer house for the same monthly cost of something smaller where you have to pay an HOA. However, if the HOA is low cost it could be beneficial in helping to keep home owners following rules to help maintain everyone's property value.
When home owners make mistakes in selling they often inflate the value of their home early on. Often, listing agents tell them they can sell it for more money but that only works if a buyer isn't educated or isn't looking at it as an investment. But often times they're wrong, and you'll on zillow where they keep lowering the price. Each time they lower the price they signal their mistake and signal to buyers that they're willing to entertain lower offers. If only one offer is coming in, that offer can be low. If there are multiple offers it wont work so you have to come in, at or above asking price if you really want that house. With homes that have been on the market for awhile, if you time it right you can get an offer in after a few price drops. Eventually, the seller may get upset their house hasn't sold and switch agencies. When this happens the price goes back up; not as high was the previous company, but still more than you want to pay and more like what the owner wants to make on it. So you have to be strategic. This process isn't likely to happen more than twice. If the first agency doesn't work and house has been on the market for over 80 days that seller may be a lot more willing to sell at a lower price.
You can often see, using Zillow, how much as seller is trying to make off their property. You can decide how reasonable you think they're being based on what they paid for it and how long ago it was. Many sellers list around $30-40,000 more than what it cost them to buy it. However, some sellers, especially if there have been updates, will try to make $60-100,000 over what their bank loan was for. Again... buy low sell high. There just might be a whale out there who will pay that high asking price.
One thing I've seen with new construction, especially, is that a builder will sell a house to someone and its basically their dream house and so they pay big money without necessarily thinking about who's going to buy it after. When it comes time to sell, they can't get anyone to pay more than they paid and sometimes they might even lose $10,20, even 40,000 in the process. And part of that is because when buyers agents talk about cost they're not wanting to recommend paying way above what other houses in the neighborhood are worth. Because when its your turn to sell, that house is going to get compared with other similar houses close by, not the same type of house in a whole different area where the property values may be naturally higher because of better schools and businesses.
The other big problem is appraisal. If you pay a million dollars for a house only worth (appraises at) $500K, even if one bank allowed you to do that, another bank may not give a buyer much more or any more than the appraised value. The sale can still happen but that person has to pay the difference out of pocket. And if they're not rich or in love with your house (when there are others they can buy without dropping extra money on) there's simply no reason they would do this. And so many expensive houses end up in foreclosure or short sales.
Picking houses should be done like picking stocks. And yes, I know many of us don't pick stocks either, but that needs to change. I'll be starting another thread about the stock market as well.
You should always like what you're buying. However, you should always see the potential, not simply for what you personally want, but what someone after you will want. Houses with crazy colors or wallpaper can put off potential buyers. But, if you can stomach a few things like this initially, and buy that house that's been sitting for awhile, and at just the right time when the listing price has dropped and owner is willing to lose some of that potential profit, then you could come away with a property that's worth more than you paid, even on day one, and a property that you can put a little work into and get someone to pay even more. Or... if you're strategic enough, perhaps you can even cause a bidding war yourself. But always remember...
Buy low sell high.