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Tips From Flippers

In a highly competitive real estate environment marked by a shortage of homes and escalating prices, many hopeful homebuyers are willing to do or pay almost anything to win the deal.

But for real estate experts who have been buying and selling homes for decades, including personal investments, they advise people to take a more prudent approach to home buying.

“In this market, you’re getting 30 minutes to make a $500,000 decision,” says Mindy Jensen, author of “First-Time Home Buyer: The Complete Playbook to Avoiding Rookie Mistakes” and real estate agent in Longmont, CO. “Homebuyers are making a very emotional decision based on being in the home for a few minutes. That’s not the best situation.”

Lately, the pace of home buying is so furious that consumers have gotten caught up in the pandemonium—some of which is fueled by FOMO (fear of missing out), says Jensen. This collective desire for homeownership has incited people to move across the country, raid their retirement savings, waive contingencies meant to protect them and stretch their budget to lock in a home. But when the dust settles, some people will likely be left with a big mortgage and a lot of regret.

And then there’s the Cabbage Patch doll dilemma: what Louise Rocco, a real estate agent at Exit Bayshore Realty in Tampa, Florida, refers to from the 1980s when a high demand for Cabbage Patch dolls outnumbered the supply, leading to underground sales and even riots.

“People will pay just about anything. They’ll put in an offer without seeing the house. It’s like the Cabbage Patch doll craze, but eventually, prices will level off,” Rocco says. “And we still don’t know what will happen when the eviction moratorium is lifted. Will those landlords sell? If they do, that could have an effect on prices, too.”

5 Homebuyer Pitfalls in a Hot Market

If you are looking for a house in today’s wild market, real estate veterans urge shoppers to avoid making major mistakes that can hurt them down the line. Here are five mistakes to avoid when your dream house is just one big offer away.

1. Don’t Buy Just Because It’s Pretty (Buy Ugly)

A key difference between a flipper and someone who’s buying to live in the house is emotion.

A real estate investor looks at everything with potential price tags on it. Meanwhile, a live-in buyer wants to picture themselves in the new home, cooking breakfast, entertaining friends, lounging in the backyard, etc. But for major upgrades like an updated kitchen, it can mean thousands of dollars more on the purchase price. For buyers on a budget, looking beyond new countertops and floors could mean getting a house that you can afford and will still have value over a long period of time.

“The secret to getting the most value is to buy something ugly,” says Smike Wallen, a real estate investor in Los Angeles. “When you buy done, you buy high. But if you look for raw structure, you can do the rest yourself if you have patience.”

2. Don’t Ignore the Roof and Windows

Echoing Wallen’s mantra of “buy ugly,” Jensen says that things like dirty carpets and weed-ridden yards don’t matter, but what does are windows and roofs. Depending on the roof, the cost can be $15,000 or more. For windows, buyers are not only paying for replacements, but they’ll also have to cover the energy bills if they do a poor insulation job.

“People see an old kitchen and say ‘I could never live there.’ Of course, you can,” says Jensen. “A gallon of good paint at Home Depot is $35-$30 if it’s on sale. You can get a brand new kitchen at Ikea for $5,000. But, you don’t want to ignore bad windows and a bad roof; those things will really set you back.”

3. Don’t Start Out Underwater

A unique, and perhaps troubling, feature of the current housing market is that people are paying above the appraised value of a home. Essentially, this means that they’re starting out underwater.

For folks who plan on staying in the home long-term, this situation might not have a material effect on their bottom line because time is the friend of equity. The longer you stay in a home the more value you accrue. However, if you buy above the appraised value and you sell in a few years, it’s likely your purchase price has not caught up with what the home is worth on paper. You could then end up paying more money just to sell it.

“I had a seller, a husband and wife, who emptied their 401(k) to buy their dream home. Eventually, they had to sell, and it cost them money to sell their house,” Rocco says, warning interested homebuyers not to purchase above the appraised value. “If you have to sell, the next buyer might not be willing to go above the appraised value and then you’re left holding the bag.”

4. Don’t Waive an Inspection Contingency

Unless you’re buying a fixer-upper or are a seasoned real estate investor who can spot black mold and isn’t intimidated by big repairs, the average homebuyer should not throw an inspection contingency out the window.

Waiving the inspection contingency means you lose your right to walk away from the deal or negotiate repairs if the inspection comes back with major problems. Not only will borrowers have to pay for repairs but in some cases, their insurance can go up.

Essential things such as “old wiring, like aluminum wiring or cloth wiring, can make your insurance costs triple,” Rocco says.

5. Don’t Bypass Condos

Location matters in real estate. So for buyers who want to be in the middle of the action but can’t afford to pay the real estate prices in those hot locations, condos are a good option.

“My team and I have doubled our money on condos in 40- and 50-year-old buildings,” Wallen says.

Wallen recommends looking at older properties because buyers can get more out of their dollar in terms of size and value. The important thing is to be in an area you enjoy living in, which is easier to do on a condo budget.

“If you buy older, you have more options as to where you live. And you can use the extra money you saved and redo it to your liking,” Wallen says. “In a few years, you can rent it out or sell it, and take that money and buy a house.”


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