“Most people who buy real estate do not set out to buy a particular property. They just look at everything that is for sale and hope to find a good deal … Not all houses are created equal … you can increase your profits significantly when you target a certain house to buy.” John Schaub, Building Wealth One House at a Time
Over the years I’ve heard John preach the lesson I’m about to share with you many times, yet I have still made big mistakes ignoring his advice!
Yes, sometimes I have to get burned before I learn (what about you?). Luckily, I finally got burned enough and created a checklist of items that I’ll share with you later in this article.
John’s lesson is basically this:
You must balance the quantitative aspect of a deal, i.e. the numbers, with the qualitative aspects like quality of construction, size of house, type of lot, school district, traffic volume of road, the price range, etc.
Balancing the quantitative and the qualitative is not easy.
Many investors are attracted to very cheap prices on smaller, inexpensive houses. They seem more profitable and safer just because the price is lower.
But many times a higher quality house in a better neighborhood would be more profitable and safer, even buying at less of a discount from retail
In my local market, I have found certain sweet spots for properties depending upon my goals.
High Cash Flow and Amortization:
If I am looking to pay cash for properties or amortize my loan as quickly as possible, houses and doublewides on the lower end of values tend to be better because I can get much better price and terms (seller financing). Yet there are still lower-priced houses I won’t buy because of their poor qualitative ranking.
Buy-Sell or Quality Buy-Hold:
If I am looking to buy and sell properties for chunks of cash, I’ve found properties a little more up the price spectrum are much better.
These properties are more difficult to buy far below market and the rent/price ratio is not as good, but they are more liquid (easier to turn into cash). In my area this second type of property has a retail price hovering plus or minus 10-15% of the median price in the area.
In either case, however, there are certain qualities of the property, lot, and neighborhood that I always want to avoid (this is where I should’ve listened to John early on).
Here are some examples of my house “no-no’s”, learned from the school of hard-knocks:
Neighborhoods with mostly tenants and not owners
Too far from jobs, shopping, and amenities (10+ miles)
Obnoxious smells or obnoxious next door neighbors
Large power lines nearby
Extra small house size
Two bedroom houses.
Weird layout (ex: walk through bedroom to another bedroom)
In-ground pool (if can’t be easily filled in).
After ignoring or forgetting John’s advice one time, I decided to finally create a checklist that I now use on EVERY house I look at before buying.
I made 3 short coaching videos to summarize this checklist. You can check them out here:
If you liked this article or the videos, I’d love to hear your comments on my blog.
enthusiastically your coach,