INVEST IN RESIDENTIAL INCOME PROPERTY

We think that new homes from the builder are the best and easiest investments. You can plop down a small deposit check, and then it takes the builder 9-12 months to build a house for you. By the time they've built your house, hopefully the market has increased and you've got instant equity in your new home purchase.

Mark and I tend to buy larger houses. Even though we know this goes against the "buy the least expensive house in the most expensive neighborhood" rule of thumb. New home builds are usually much cheaper per sq.ft., the larger the house is. For example, in Austin you can buy a 1600 sq.ft. house for $100 per sq.ft., but in the same tract, you can buy a 3200 sq.ft. house for $70 per sq.ft. Since most investors buy 1-story, 3-bedroom starter houses, we find it's easier to rent out a 2-story, 4-bedroom house in that same neighborhood. Also, we like the larger square footage for resale!

We never mind paying builder lot premiums for a large lot, a view, or a superior location. Years into the future, when you go to resell your house, you'll be GLAD it has a bigger lot, or that it backs up to a lake. Especially if you find yourself in a depressed market - your house with the extra feature (that you paid for at the time of purchase) will sell before the competition.

We LIKE buying homes in master planned communities with homeowners association fees, rules and guidelines. The homeowners association does the landlords job for us! They patrol the neighborhood, looking for violations - an RV parked out front - oil stains in the driveway - Christmas lights in April. The homeowners associations are a pain in the butt with their silly rules and regulations, but they're looking after our property for us.

When you buy a new home from the builder, they will usually give you a nice cash incentive to use their in-house lender. Weigh that incentive with the amount of extra garbage fees that you'll be paying -- it usually is favorable to use their lender - but not always.

Sometimes it is more advantageous to pay cash for your new income property $. Write a check from your home equity line of credit (a heloc is a loan against the equity in your house - it's can be drawn upon and replaced like a checking account - and the interest is usually adjustable at Prime rate), then, after you own the house, you can refinance it and use that money to purchase your NEXT property (refer to the Leveraging Your Money page). If you can swing a cash purchase, it makes the whole process easier. Also, you can use your cash buying power to negotiate better terms.

Do NOT buy any houses that back to a road. Remember -- location, location, location!
Go ahead and spend some money on lot premiums. Having a big lot can be fabulous for resale down the road, and a cul-de-sac location if fantastic for getting both tenants and for resale.
Pay close attention to what the house will back to. If the house backs to a greenbelt, that’s great! If it backs to other houses, it makes ALL THE DIFFERENCE if it’s backing to a bunch of 1-story houses, or backing to a 2-story (yuck).
Try to choose a house with cathedral or vaulted ceilings -- makes it nice for resale. An open kitchen is essential as well.
Keep in mind, buyers always shop in increments. Buyers tell their Realtors, “I want a house over 2000 (or 2500, or 3000) sq.ft.”. Don’t buy a 2950 sq.ft. house when a 3015 sq.ft. house costs just a bit more.
Can you add on a 3-car garage for not too much? DO IT! Buyers (the husbands) often say, "Don't show me a house unless it's got a 3-car garage!"

Here’s what I will spend my lovely money on when I’m buying an investment property:

Rounded corners and raised panel interior doors.
A fireplace (but no upgrades on the tile work around it).
There's nothing wrong with Formica counters – go with the included countertops.
Personally, I HATE oak cabinets, and will spend a little bit to upgrade them (but not a lot).
Windows in the garage doors – light is GOOD! Plus, the garage doors with windows give a nice street appearance.
wiring for coach lights on both sides of garage.
If it’s not too much, I’ll pay to upgrade the flooring to 14” or 16” ceramic tile, plus put it in the family room. If it seems expensive, take the free linoleum. You can always upgrade the flooring later when you’re ready to resell.
I’ll add a window here (for light) or change a window to a slider door (for instance, if the master bedroom is on the main floor.
I’ll pay a few bucks to have a beige or taupe color painted on the walls. Makes it look nice for presentation to potential tenants.

Don't pay for ceiling fans, a gas lot set, a garage door opener, upgraded carpets or pad, upgraded faucets, sinks, appliances, yard or sprinkler installation. These are all things that you can do cheaper yourself, or postpone them for down the road when you wish to sell the house.

Basically, I’ll only pay for the upgrades that need to be incorporated at the time of build (for instance, on my Cat Hollow houses, I can add a third car garage for $7500 if the lot will allow it). All the other stuff (like lovely granite counters) I can do in 10 years when I’m ready to sell it. Do NOT allow your emotions to run rampant when choosing upgrades. Keep saying to yourself, “This is NOT going to be my home.”