Chapter 6
Select Your Area

"Some homes are better suited to fixing up than others."

Where you buy and what you buy, will determine not only the salability of your property, but also its potential for future capital growth. When we refer to location, we must also evaluate the location within the location.

BECOME AN AREA SPECIALIST

First, you need to become an area specialist. Once you have chosen a geographic area in which to work, you will need to go over it with a fine toothcomb.

Find out the typical home styles; find out about schools; find out about shopping facilities; and how much houses sell for.

Yes, I know that it sounds boring and tedious, but hey, you want to make money, right?

The truth is that these bargains come along quite frequently. The problem is that most people simply don't know how to identify them when they do come along.

Your number one secret weapon will be your innate capacity to identify a bargain when you see one.

GO FOR AFFORDABLE HOMES

My experience has shown that it is wiser to aim at affordable homes rather than expensive homes. Not everyone can afford to rent or buy expensive homes.

It is therefore logical that fixing up lower priced homes greatly lessens your risk of not achieving a quick sale, or finding a suitable tenant.

THE RISKS OF EXPENSIVE NEIGHBORHOODS

Firstly, homes in expensive neighborhoods require higher cash outlays. Not only will you need a larger down payment, but you will also require more funds for the rehab work, finance, and closing costs.

The second big risk with expensive homes is that your exposure to sudden movements in the market is far greater than lower priced homes. It is also true that the reward potential is also higher.

What if there is a sudden increase in interest rates? Herein lays the risk of expensive properties. Any sudden correction in values can see your potential profits disappear into thin air. You may even find yourself facing a potential loss.

What makes up a good neighborhood?

In contrast to expensive neighborhoods are the run down neighborhoods. These suburbs should also be avoided at all costs.

The reason I say this is that these neighborhoods generally contain a high degree of run down homes, higher crime rates, and higher ratio of renters to owners. In short, many people live there because they have to, and not because they want to.

There is simply no point fixing up a house in these neighborhoods, only to find that nobody will buy it, or worse still the tenants destroy it. Think about it for a moment.

If you could afford it, would you buy a good home in a bad neighborhood, or an average home in a good neighborhood? It makes sense, doesn't it?

Okay, so let's get back to what makes a good neighborhood. On top of your checklist should be a history of rising values.

If we take one step back and revisit why people buy in areas, and how they are prepared to pay a premium, a strong history of steadily rising values indicates that demand for these areas is usually greater than the supply of good clean ready to move in homes.

People are too busy to fix up their home. Give them a beautiful home that is ready to go, and they’ll be knocking on your door, almost ready to throw their money at you.

It is worth repeating that given the choice of two identical homes of which one is run down and the other in mint condition, people will go for the one in mint condition.

My ten years of experience marketing real estate have proved this to be the case more than 90% of the time.

Next on your list is that there should be obvious signs that other homes are being upgraded and improved.

The logic applied here is quite simple: The constant upgrading of homes is a sign of confidence that people want to live in that particular neighborhood. Improved housing and streetscapes lead to higher demand, and therefore higher values.