The Best Real Estate Investment Nobody Knows About! - Part 4 by Mark & Lloyd Walters 4-1
"Nicest Prices!"
When I mention the prices of these homes I’m referring to the base price not
including options. The reality of options, also known as upgrades, is that you're just
going to need to add some. This is not to be construed as a green light to spend a lot of
money on nonessentials. But, there are just some items that must be added to the house
to secure the best possible value for the least amount of money. For example, usually
when you're interested in a property found in the lower end of the pricing structure, the
builder is going to try to do what they can to keep starting prices low so as to attract as
many people to the development as possible. With this in mind, if you want little
extras, you're going to have to pay extra for them. For example, this subdivision's stock
carpet was the type that no one should accept. It's cheap looking and will wear out
quickly. One would need to upgrade. There are usually different pricing tiers one can
choose from. Its just good business for the builders to do it this way, because many
people will spend a lot more money when given the choice. So one must spend an
additional $1,000 or so to get carpet that's practical. Add another $300 or so for
improved carpet padding.
These extra expenses are a must, because people just expect these modern
luxuries. The prices I’ve mentioned will vary depending on square footage, but these
are general guidelines. Over time these prices will increase but the theory is the same.
There will be more expensive carpet to choose from, but remember, this is a
rental house. You're not going to be living there. You want carpet that people are not
going to object to when they first walk into your house. You also want carpet that will
last many years. Don't feel like you have to get the best, most expensive grade of
carpet. Just get one that looks good and has the quality to last for some years. The
person showing you the different choices will tell you the durability and potential
longevity of the different samples you have to choose from. Pick a color that will not
show stains too easily. You don't want carpet that's too dark, but you also don't want
carpet that will show every little piece of dirt. There are color blends that disguise wear
very well. Just look with a practical eye. I usually choose something with a medium
brown color that looks appealing. This is acceptable to most people and will serve you
well. Don't go for a color that people can't envision their furniture on. Brown and
neutral colors stand the best chance to work and match the best.
See figure #5 & #6 for the list of options on these two houses. The options on
figure #5 is for the one story, figure #6 is for the two story.
4-2
In Figure #5 you'll notice the options list for the one story house. Realizing that
many of these upgrades are profit generators for the builder, I'm only interested in
options that will help generate money for me. By that I mean choosing only upgrades
that add value to the property. The values of these upgrades are often added to an
appraiser's valuation of a property although they might not give 100% cost value. Not
all options are considered when calculating the value of a house, but many are.
UPGRADES THAT MAKE SENSE
You'll notice cosmetic options many times that really don't add value to the home.
These upgrades would include windows in the garage door, mirrored closets, lighting
and appliance upgrades etc. On the other hand, some make sense. Until I purchased a
new home I never thought about doors within the house being upgrades. The style of
door that is. There is such a door called a "Colonist" door. We've all seen them. They
have four to six panels within the door giving nothing more than an accent. I'm sure
you've seen them and thought nothing of them, like I did. I was surprised to find this
style door an upgrade. At first I didn't want to pay the extra money for it. I felt that a
flat door was just fine. But a friend of mine went through the model later with me and
told me he was upgrading his house with colonist doors. I told him the cost I would
have to pay and he encouraged me to consider it. This was a new house after all. Why
not put the doors in that add a little classic styling? The flat doors would have worked
just as well, but these add an esthetic pleasantry that I felt was warranted, but not
absolutely necessary. People usually don't mention or notice the things in a house that
are right, but they do notice what is wrong. Many times they can't tell what is wrong.
They instead just get a bad feeling when they're in the house. I'm not trying to say that
they will feel this way if you have flat doors. But just as they can get bad feelings for
unexplainable reasons, they can also get good feelings. If your house just feels right,
you will rent it easier and ultimately sell it easier down the road. The doors just make
sense to me.
As far as the one story house goes, here are the upgrades I would choose. The
island counter in the kitchen is a must. It adds a lot of appeal to the kitchen while also
providing practicality.
4-5
As I mentioned before, over time builders know what people desire in a house.
Upgrades and features that used to be exclusive to expensive homes are now common
in new starter homes. It's not at all uncommon to find dual bathroom sinks and very
large master bedroom closets in inexpensive new housing. Builders have found ways
to take square footage from some areas and put them in others giving people what they
want for an affordable price. This adds up to more sales and profits for the builder.
Kitchen islands are the same way. They're perceived to be luxurious and practical. If
the price is reasonable, go for it.
A ceiling fan outlet here in Arizona is a must. The $150 listed is per room. I
might consider only putting them in certain rooms, but all the bedrooms would actually
need them. Renters comment on houses with fans in all rooms when viewing a home
for the first time.
Vaulted ceilings are also an upgrade that I prefer. As far as a one-story house
with just 1,239 square feet is concerned, the vaulted ceilings add space, glamour and
prestige to an otherwise basic, utilitarian home. I believe you can charge a little extra
rent for a house that gives that kind of feeling. When people are choosing a house to
rent for at least a year, they want something that makes them feel good. Americans are
spenders. Most don't know where their money goes or what they spent it on. They are
willing, if they are able, to pay an extra $25-$50, if not more, per month for a home
they consider special. Vaulted ceilings help make a house special. I feel it’s worth the
added cost.
Backyards need covered patios. It's important to people who spend time
gardening or entertaining in the backyard. People don't realize how much they've
grown to expect them. But if your house doesn't have one, the backyard will look like
it's missing something. It's glaring and noticeable. Don't be short sighted on this.
People have pets that need shade. They have children they want to be able to watch
play in the backyard, while they're protected from the sun. It adds value to the house.
You need to invest in a covered patio particularly if you live in a climate that is
warm and has many sunny days. People naturally want to go outside when the weather
is good and they will find your backyard an asset when there's patio shade.
4-6
That's about all I would elect to upgrade on the one story home. Here's how that breaks
down monetarily:
Ceiling Fans: $150 x 3 = $450
Kitchen Island: $754
Colonist Doors: $350
Vaulted Ceiling: $1,576
Covered Patio: $1,975 (14' x 8')
Carpet upgrade: $1,200 (generally speaking)
Total upgrade costs: $6,305
Considering the base price on this house is $78,900, the total cost with upgrades
is $85,505. The total square footage is 1,239. That breaks down to $69.01 per square
foot. That's not the cheapest price for a house, but considering it's brand new, that's
quite reasonable. Since you're purchasing this as an investment, it all boils down to
how the numbers stack up. As I will show you shortly, the mortgage payment will be
reasonable considering what you may charge for rent. What you're looking for is a
good house that's going to generate a positive cash flow.
Let me just tell you that I did not buy the above one-story. I thought that it had
potential, but it was the two-story that got me excited. Still, if it weren't for crunching
the numbers, I wouldn't have seen the overwhelming differences staring me right in the
face.
4-
7
"New Housing Choices"
Listen to the numbers, they're telling you something This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
