I saw something recently about a young couple buying their first home. They were completely attached even BEFORE the closing. So when the appraisal came back a little low (they had offered above the asking price in order to beat out another buyer), they paid $1,000 above the appraisal plus their own closing costs of about $4,500. This means that they started their newly married lives in a home in which they owed $7,000 more than the appraisal.
The first thing that the wife did was to buy a hot tub for the back patio for a wedding present for her new husband. These were young professionals who could afford this house. It was about $160,000 plus the hot tub. The point is not whether they could afford it - the point is that they now are "upside down" with their biggest investment in their lives.
When the husband brought up the question of children and the school district this house was in (they didn't even know because they were totally new to this city), the wife just blew him off and said, "We have enough to worry about right now with the dogs." She WANTED this house so badly that she could taste it.
That disregard for common sense is a great thing to have in a buyer if you are the seller, but it is a very, very bad position for you to be in as a real estate investor. Homes are a commodity, not an emotional purchase. You need to look at a home's resale value -- not its cute breakfast nook.
Analyze the pros and cons of a property based on facts. Know without a doubt what houses are worth per square foot in the area that you are going to be investing. Don't speculate how much your renovations are going to cost. KNOW this from past experience or a detailed trip to the lumberyard. Also know what the expected carrying costs are going to be. How many days are homes on the market on average in this area? What are your mortgage payments, utilities, etc. going to be? An informed investor is a wise investor.
From www.HowToRenovateHouses.com
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