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Buying the ugliest house on the street: A beautiful investment strategy

by Jeffrey Hammerberg
Whether you acquire a house for investment purposes, as a primary home or as a second or vacation home, understanding the philosophy behind buying the “ugliest house on the street” can help you to make wiser decisions and get more value for your money.

They say that we are defined by the company we keep. Applied to real estate investment, this sometimes means that houses that are ugly ducklings benefit by their proximity to those homes that are upscale swans. This happens because homebuyers shop and compare what’s on the market in a particular neighborhood and then make offers based on what they find. Also, professional appraisers calculate value based on side-by-side comparisons of such characteristics as amenities, square footage and location. Homes near one another are used to create a comparable baseline for pricing — and if a modest home is surrounded by fancy houses, for example, its value will be pulled upward thanks to a prestigious location.

Among investors, it is often said, “Never buy the best house on the block.” The logic behind this rule is that the nicest properties frequently have the least room for upward appreciation.

Houses can also lose value if they are surrounded by less desirable properties, which is why investors prefer to buy mediocre homes in exceptional neighborhoods, as opposed to buying exceptional properties in mediocre neighborhoods.

Buying homely homes is a proven path to wealth for those who know how to see beyond the blemishes and cosmetic flaws and recognize upside potential. Here are some tips for finding — and making money on — these unrecognized diamonds in the rough that inexperienced buyers usually overlook.

Don’t judge a book by its cover.
Many seasoned investors prefer to buy solid, structurally sound houses that don’t necessarily show well or have much “curb appeal” — in other words, they seek out the less attractive properties because those can be converted into more attractive returns, dollar for dollar.

Many houses that don’t look good on the surface only need a simple makeover in order to make them sparkle. Shabby carpet may disguise pristine hardwood floors and an unused basement might easily convert into extra living space. Sometimes an otherwise spectacular property looks terrible from the curb because it has peeling paint and an overgrown, tangled landscape, so nobody pays attention to it. But a coat of paint and a landscape crew can turn that kind of property around in no time at all, adding substantial value to it through a relatively small investment of capital.

Use building inspectors and contractors to help evaluate properties.
Hiring structural and mechanical inspectors and building contractors to scrutinize ever nook and cranny of a house before you buy it is the best insurance against purchasing a problematic property. Licensed environmental inspectors should also be used to check for radon gas, mold, asbestos and other health hazards that can be extraordinarily expensive to remedy.
Once you’ve found a property and have inspection reports in hand, get competitive bids from contractors for doing upgrades and renovations. Sometimes the house listed as a “handyman special” is the best value on the street, and contractors can help you crunch the numbers to make sure.

Study the data, tour lots of homes and be patient.
Realtors can provide you with detailed sales data for any neighborhood or street, to assist you in identifying undervalued properties. Scout out as many properties as possible with the help of a Realtor who understands your investment criteria. When shopping for bargains it helps to shop ’til you drop — the more houses you look at, the more chances you have of finding what you want.

If you see a neighborhood with gorgeous homes that are attracting plenty of attention from buyers, focus your search in the adjacent neighborhoods for overlooked properties that may have slipped under the radar of others.

Buy in the off-season.
Most real estate markets experience a significant slowdown during the cold winter months and then perk up again when the sun comes out in springtime. Prospective buyers tend to stay home and wait for more pleasant weather, and sellers whose homes have been on the market for a long time get especially antsy during this long lull in the action. For that reason, winter is an ideal time to make an offer on those houses that look drab and dreary but have underlying beauty. Sellers will be more willing to negotiate and there will be less competition from other buyers.

Finding real estate bargains is the easy part, but recognizing them requires vision and skill to see beyond the surface cosmetics. But once you develop that knack — or surround yourself with expert consultants to help you figure it out — the process can be simple, fun and profitable. Many of the most successful investors got rich on ugly ducklings by following these basic tips and guidelines.

— To find a qualified real estate agent to help you locate investment property, visit www.GayRealEstate.com or call toll free

1-888-420-MOVE (6683). These experienced professionals specialize in serving the LGBT community worldwide.

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