Preston and I are both millennials and our generation seems to be doing the home buying process differently than our baby boomer parents. We are more willing to rent to be in the right location vs buying the house in the suburbs. We have less cash for a down payment due to fun things like student loans. And due to popular TV shows and networks (cough HGTV cough) we all seem to want this great investment that we can “fix up” on our own.
Lucky for you, Preston and I are both licensed realtors in the state of Texas. We learned so much during our first year of real estate and realized we have so many lessons learned that we wish we could tell ourselves 3-5 years ago. Since purchasing a home is most likely one of the biggest investments of your life, we want to make sure you do not learn any of these lessons the hard way.
Lesson one: Why didn’t we buy that house years ago?!?
We live in Fort Worth and there are a couple of neighborhoods, primarily Fairmount and Ryan Place that has tripled in value over the past 10 years. I showed a couple a listing this week for a home that sold in 2010 (only 7 years ago!) for $150,000. An investor purchased it and completed fixed it up, bringing this 1907 home back to life. They then sold it in 2015 for $350,000. Did your jaw just drop?! That is a 5 year gain of $200,000! Of course the investor most likely put some money into the house, but with that property value increase I am pretty sure they walked away with some cash in their pocket…the home is now re-listed for sale after a couple purchased it and added more improvements (garage, outdoor kitchen, fencing, lighting upgrades, etc) and are now trying to sell it for just under $550,000. Needless to say, we are kicking ourselves for not buying property in this area asap. We still plan to buy in this area because there are so many fixer-upper potential homes that we believe make it a good investment even today. We just might cry when we pay over $300,000 for a home knowing we could have gotten it for under $200,000 just a couple of years ago…I wish I know that boarded up house in 2010 would now be selling for half a million dollars!
Now, you cannot always guess that a neighborhood that was once filled with several foreclosed homes would become the new neighborhood everyone wants to live in, but if you are looking for a fixer-upper, those are the neighborhoods to look at. It would be worth it to rent the house out for a couple of years before you put a major investment into it to see where the market is trending.
Lesson two: BUY A HOUSE.
Due to living in different cities for a couple of years before we got married, we are late to the home buying game. Preston moved into my downtown apartment and we have stayed here until we buy our house…because yes, we are still looking. We will talk more about making compromises on homes, but it is easier said than done. I joke that Preston is the pickiest buyer I have worked with. We both know we need to buy a house sooner than later, but our deal breakers are different. I primarily want a home in a good neighborhood with good bones and two bathrooms (I believe it saves marriages!). Preston, on the other hand, wants a historic home in a specific neighborhood (but not a shotgun house), wrap around front porch, 3+ bedrooms for a home office, etc. So our personal house hunt goes on.
After not only seeing how much equity our friends have made from increasing property values alone, we are so sick of just paying rent. If you add up our monthly rent for the past two years, we would have a VERY nice down payment. Obviously, not all investments are foolproof, but people typically do well in real estate. The industry also recommends having a house for ~ 5 years in order to recoup closing costs from buying, when you then list your house. That will also give you enough time to determine if the property value is increasing.
Lesson 3: LOCATION, LOCATION, LOCATION
As noted above, real estate is typically a great investment, but we recommend you follow our main advice: location, location, location. Check out the location of the house you are looking to buy. If it is close to something that you know you did not like (yes admit it) you might have an issue with future buyers when you look to resell it. This can be a power plant, highway, train tracks (hard to avoid in Fort Worth), etc.
Sometimes we have to coach buyers that if you are not building a brand new home, chances of having a perfect home that meets all of your needs is tough. No pre-owned home is going to be perfect. BUT also note, that a “perfect” home in a bad location is going to be tough to resell.
Disclaimer: there is always a catch 22 to the location because you do not always know that a forgotten neighborhood is going to be revived making prices skyrocket. Just ask yourself if there was something you do not have control of (a major highway or creek that always floods) and if you believe it will be an issue to future buyers down the road. If you say yes, then this may not be the best investment. Note that if you plan to live in that house as your forever house, then it may not be as big of an issue, but if you are looking to make a quicker investment we always recommend checking out the neighborhood well.