Don't wait to buy a house,
buy a house and wait.

Location

Location is the single most important factor in the success of your real estate investment. If you can pick the next popular spot, great, but it’s also wise to buy whats already popular, giving you the greatest long-term potential. Typically, the best places get better, and those on the fringe are more vulnerable to market changes. The world is a small place and getting smaller, so demand is always going to exceed supply for the most desirable spots.

If you can’t afford the location you want, find one that you can and become a landlord. This way you can start building the home equity that will eventually allow you to buy what you want, where you want. You can also buy a smaller home in your preferred location, or a two-family that will cover part of your mortgage payment — more on that below.

Quality

Second to location is quality. Does the home have character, or a unique feature, or great natural light? Focus on the things that can’t be changed ahead of those that can. If the kitchen is dated, but you can live with it, that’s to your advantage. You can always renovate when you’re ready, potentially with the equity you gain from the house. On the other hand, if the basement floods or you’re in the shadow of a taller building, it may impact your resale potential even if it doesn’t bother you. You can’t have it all, but make sure you don’t sacrifice too much as it will untimely help the home appreciate more.

In addition to the tangible qualities of a home, pay attention to the intangibles like design and flow. While style is subjective, a well designed house has an effortless floor plan and good sight lines, inside and out. Changing these are much more difficult than updating a kitchen or bathroom, and will survive the test of time. Too much design or customization can also create additional maintenance expense, so keep it simple for the best results.

Financing

Local banks and credit unions are usually your best bet, with the lowest rates and best customer service. Talk to at least three and pick the one that works for you. Rates are generally the same so don’t worry about endlessly shopping around, and if the current rates seem high, a 2-5-year ARM (adjustable rate mortgage) could be a great option. If rates are low, stick to the 30-year (or 20-year if you can) and keep an eye out for an opportunity to refinance even lower. Whether you sell or refinance, you’re likely not going to keep your original mortgage for it’s full term, so don’t sweat it if you need to move fast — there will be plenty of time to shop around later!

First-time homebuyers

First-time home buyer programs are widely available at the state and federal level — your agent and bank should be able to advise. Typically, they will allow you to make a down payment of less than 20%, possibly as little as 5% or less.

Agents

Agents can be both priceless and useless, it all depends on who you’re working with. If you’re buying, there’s really great news — you don’t have to pay anything (for now)! If you find a good one, keep them around forever, but know that most work in specific markets so you’ll typically need to find a new agent when you’re outside of your home base.

Inspections

An inspection is always a good idea, but take it with a grain of salt. There’s only so much they can find without opening up walls or spending extended time in the house. No house is perfect, and inspectors will often amplify small issues and miss large ones. Keep an eye out for the high-cost, long-term items and make sure to ask the age of everything!

Maintenance

The dark side of home ownership is maintenance. You never know when or where it will strike, but rest assure it will! The good news is ever dollar you spend is an investment and should add equity to your home. Loaning against your equity is also a great option for large or unexpected projects to avoid hi-rate short-term loans, credit cards, sale of stock, or use of emergency funds. Monthly deposits into a separate maintenance account is another way to help spread out the expenses, similar to a condo fee. And keep track of everything as it may be deductible, especially if you rent.

Multi-families

Two, three, or four family houses are a great way to reduce or eliminate your mortgage payment by living in one unit and renting the others. The rental income will also set you up to buy additional properties by increasing your ability to lend. You can purchase up to four units with a residential loan, and multiple units within a single structure creates many efficiencies.

Vacation rentals

If you’re ready to buy a second home, or not ready to buy your first, a vacation rental is a great option that can pay for itself while still affording you personal time when it’s not rented. Unlike long-term rentals, short-term rentals typically generate higher yearly income with less wear and tear on the home. And don’t worry if you’re not in the city or by the ocean — mountain areas near ski resorts have some of the longest rental seasons, and every state has niche areas of interest. You can also finance a vacation rental as a second home, and many banks will still allow you to leverage its equity.

Leveraging equity

Once a fews years have passed, you should have some equity to loan against. In most cases, you’ll want to save your equity for making large improvements or repairs to your home, such as a new roof or kitchen. If you’re feeling adventurous, you can also use this equity to make additional investments or buy additional properties. You will have to pay some interest, but you still own the underlying asset with potential to generate additional growth from your reinvested equity.

INVESTOR DISCLAIMER

All investments involve risk of loss, and we encourage you to invest very carefully. We also encourage investors to get personal advice from your professional investment advisor and to make independent investigations before acting on information that we publish. We do not in any way whatsoever warrant or guarantee the success of any action you take in reliance on our statements or recommendations.