Expert: Connie Wildasinn-Broker,GRI,Realtor® - 7/23/2010

Question
QUESTION: Which is better as an investment, to buy a foreclosure at a good price in an older neighborhood(Currently, there are renters taking good care of the place.)This home was built in 1990 and is in a very small lot( 3223 sq.ft)The property taxes are also very low. It is in a very good location and there are no other foreclosures so far in that area. And the value of most of the surrounding houses are about the same as that one. Or should I go for the 1969 home built on pier and beam that was remodeled and not very well, unoccupied and is selling above market value?(There are homes that have recently sold in that neighborhood for less.) And the value of the homes there are way below this asking price. The home is in a very, very desirable neighborhood because it is close to schools, (elementary, middle, and high school), restaurants,etc. The other home is newer and is brick veneer and is also close to schools, and 2 minutes away from the expressway. It is in a more quiet neighborhood as opposed to the other one that is in a very busy street.(However, the house is located a little farther to the back of the lot and this does not interfere with anything and it is on a very big lot-10010 sq.ft. I am so undecided and need expertise in this area. I would appreciate it if you would respond asap because homes in our city go fast when they're good deals. P.S. Both of these homes would eventually become our future home when all our children leave.(in about 4 years the last one) So, would it be easier to live in the small lot or in the big lot? Both are very small houses-one is 775 sq. ft. and the other one(the one on the big lot) is 874 sq.ft. Neither has a garage or carport.

ANSWER: Hi Ester... good question... (a lot of good questions here) I get this a lot...

You must look at an investment very differently than you would your home you live in....

You want an investment to PAY YOU! and that is the bottom line... (I do have to laugh a little - 1990 is so new, I deal with turn of the century homes!)  any ways... get the property that is BELOW market price/value - typically an REO is lower than a standard sale... but sometimes the Short Sales can be better due to wait time and headache involved... but each area is different... any ways... go for price and then repairs and rents... buy only what you can comfortably afford and make sure that the tenants pay the entire mortgage, taxes, ins and impounds... what ever is encumbered on the property! Not you..ever...

... Give the tenant amenities... good yard space, dog area, BBQ area, shade to relax in ... parking...etc...this is what all tenants want.. everything for nothing...that is why they rent... make it clean and fresh ...

Don't get greedy on the rents... say 3% under market rents and you will keep it rented for years to the same tenant... you don't want turn over... you loose a month you could loose your entire years profit!

In short buy the one that makes the most money, in a neighborhood you would not have issue to go and collect rents and do minor repairs (if the sprit moved you)

Both sound like good homes... in good areas... a tenant only sees what they want... if the area is wrong for a person, you won't get inquiries from people who would not live there any ways... even in the bad areas the properties are rented... it boils down to rent value when you have a vacant unit... you can only charge the going rate...

I hope this helps you make a sound decision... Good luck

---------- FOLLOW-UP ----------

QUESTION: You have touched some issues that I had never thought of.(trying to be a first-time investor) If the house that I really like has a lot of back yard, plenty of parking space(no carport or garage, just a big yard with a long driveway), and is selling way above market value, wouldn't it be a good deal if the property taxes are low?  (just a dumb question that keeps me wondering) Thanks and please let me know asap offering me your expertise. It has helped me tremendously. I just might have to wait to find that perfect investment. And I guess the fact that the home would eventually become our future home is not important right now.  All that counts is profiting, right?

Answer
Hi Ester...

NEVER pay over market value unless you know the market is poised to have a run up as we saw before the crash... then you can buy and sell quickly and make money...

As an investor... you ALWAYS make your money on the PURCHASE, never on the SALE... you must buy right to win in this chess game...

Taxes are a small part of the over all... your tenants are paying the tax...

Keep in mind even if you buy to hold forever(I hear this all the time) things change, you may need to sell for one reason or another... you must be poised to be able to do that... waiting for market values to rise is a risky assumption unless the market is doing what we saw from 2002-2006... and I personally don't see that happening again until they reinvent the napkin... (inside real estate joke) but really they will have to have something happen in the USA to cause a mass movement... the recent down trend and REO market is to fresh in the publics mind... too many people still smarting from bad times.. and I really don't see us pulling out until after 2012 and that is a good guess I have held fast to since 2006... so my person prediction is now running 4 years... and I had people in 2006 telling me I was the fool... who is the fool now????

Also don't wait for the perfect investment (does not exist for newbies) but do find the good to great deal... and jump get in the market and lean how to play... become a great landlord... there are many trick you will need to learn...

Good luck