These blog posts are meant to share my findings, adventures, needs etc while seeking out real estate in Orange County, California. They are in no way meant as a source of advice, financial or otherwise or a solicitation of funds. If you are in the market to buy or sell real estate or trying to make a financial decision, please consult a professional who is familiar with your needs and your financial situation. Everything on this blog is merely an expression of my opinion.
While out and about today, I had a neighbor ask me about buying a new home and if the price was good as an investment. It’s an interesting question that I get very often, “will this home make a good investment?” Of which I normally reply, to the surprise of people asking, that I don’t consider my home an investment… or not a very good one. “Why?” is always the next question I get, and so I thought I would blog the reasons. Of course, your opinion may differ, but here are my reasons
1. My home is almost always bought on a emotional whim. The location, aesthetics, the layout, square footage, land area, is all based on my emotional attachment to it. While I wouldn’t likely pay far over market for it, my “emotions” would certainly make me bid higher than I would as an investment. On the other hand, for an investment, I go by the numbers. It doesn’t matter if it’s an apartment, a house or a townhouse. The color doesn’t matter, nor does the type of flooring or it has a patio or a sun room. If the numbers work, I’m purchasing it. In fact it’s better that I don’t have emotional attachment to it so I won’t have a hard time letting it go when it’s time to sell.
[Edit] Just came across this story online, which, to me, is an extreme example of buying for investment versus buying for self. Check out the story here. In the case of the house of Amityville, if the house was priced well enough to cover the costs of repairs, an exorcism, transaction costs and the profit margins, I’d jump on it because it’s a piece of real estate witha problem I could solve and profit from it. On the other hand, if I was buying for myself, I would likely pass on it because it is probably impossible to get a home loan that would cover the exorcism, so that is cash up front, not the mention the time it would take to get the ghosts in the house sorted out. Ok, crazy example, but seems like good food for thought.
2. If the real estate market is really hot and I’m offered a great price for my house, great enough that i would move and leave behind all the friends and neighbors I have gotten to know after all these years, odds are, the real estate market is hot everywhere else, and I’ll end up selling high and buying high, putting me right back to where I started with no real profit margins to speak of. Of course, I could take extreme measures and move out of the country or state (been there done that), rent or seriously downsize ie from 2000 sqft to 700 sqft, but realistically, all those solutions cost a tremendous amount of money too and the margins for doing so never end up being that great. So timing the real estate market in terms of buying and selling is tough.
3. My personal home tends to have very personal upgrades that may or may not retain their value or be of value to the next buyer. While I don’t have one in my house right now, the one upgrade that comes to mind after seeing so many homes is an in-ground jacuzzi or pool. Uggh, the pool or jacuzzi, while loved by the owners, can be a real polarizing feature when it comes to selling the house. You either love it or hate it. And even if your buyer loved the idea of a pool, they might be turned off by the equipment, the shape, size. As an investment, I want my product to appeal to the widest range of buyers possible and odds are, I won’t be putting in any upgrades that returns less than the amount I’d put in it.
4. When I buy my home, I’m thinking about how I plan on growing old in it. I don’t plan exit strategies, alternative uses, rental returns. On an investment property, the only thing I really worry about is exit strategy and returns. And that’s a huge difference when it comes to seeking and then bidding for real estate.
Of course once in awhile, the stars may align and I come across a good investment which doubles up as a great home. In those case, I’d recommend jumping on such a deal without a second thought. These homes only come by during those once-in-a-lifetime financial meltdown.
