TIPS FOR SELLING AN INVESTMENT PROPERTY
Selling an investment property can be an effective and rewarding way to make money. Done right, it can also be a good investment. The goal is to buy an inexpensive property — typically one at auction or in need of renovation — make updates to increase its value, then rent it out or resell it for a profit. Here are some helpful tips.
1. Make sure you have good credit
Successful investment property sellers recommend dealing in cash only. For many people, however, this isn’t possible. Unless you have enough cash to buy the house and complete the renovations, you’re going to need a loan. And you’re going to need great credit to get a loan on a potentially risky house.
The first step is determining your credit score. A higher score not only improves your chances of getting a loan but may also help you qualify for a lower interest rate.
2. Understand the market
It’s important to buy in a favorable market and location. Start with the big picture: Buy in a city that’s on the rise. Look for areas with positive job growth and decreasing unemployment rates.
Then look for a neighborhood that’s in high demand or on its way there. While you can renovate a house, you can’t fix a neighborhood.
Avoid areas with lots of homes for sale. This could mean people are relocating due to crime rates, poor school systems or an impending development.
Also, be smart about which house in a neighborhood you invest in. Aim for the worst house in a great subdivision, as its value is almost guaranteed to go up.
3. Create a budget and stick to it
Create a budget for both your purchase price and renovations before you buy a home. Make sure to have a professional inspector look over the home to identify any hidden costs such as mold, roof replacement, faulty wiring or plumbing.
When calculating how much house you can afford, stick to the 70% rule. Don’t pay more than 70% of the home’s value after repairs, minus the estimated cost of those repairs. For example, if your home’s post-renovation value is $180,000, and you plan to spend $20,000 on repairs, you should pay a maximum of $106,000 for the house.
$180,000 x 0.70 = $126,000 – $20,000 = $106,000
4. Only make worthwhile renovations
You could easily spend several months and tens of thousands of dollars renovating an investment property. Exercise restraint and focus on the repairs that’ll give you the most return. Small, less-expensive, cosmetic fixes can have a big impact:
• Fresh interior or exterior paint
• New landscaping
• New flooring
• Fresh painted or stained decking
• Power washing the exterior, patio or deck, driveway and sidewalks
• Shelving in closets
• Modern hardware on cabinets and doors
• New interior or exterior light fixtures
• Repainting the front door
• Painting or adding shutters
You can save money by doing many of these projects yourself. More extensive ones might require a contractor’s help. It will cost more, but the job may get done faster.
A successful investment property sale requires careful budgeting, smart financing decisions, great credit and finding the ideal home. And if you plan to work on or oversee repairs, it’s a good idea to choose one that’s not too far away. This will help you stay on track so you can get the house updated and on the market.