Appearances often influence our purchasing decisions. It is no secret that the more attractive a car, phone or house looks, the more likely someone will want to buy it. In the case of real estate investing, the opposite should be taken into consideration. Walking into a house with updated fixtures and appliances looks nice, but it may only divert your attention from other deficiencies. You need to resist the temptation of falling in love with initial appearances and look at every property the same. A property may look good at first glance, but on closer inspection you could be buying a home with plenty of warts. Let numbers dictate the direction of an impending deal.
One of the biggest mistakes that investors make is judging a property based on the first impression. This can work whether the property looks good or not. If everything looks in working order, it is easy to assume that there are no issues with the structure or anything else with the house. The reality is that you need to perform your due diligence on every property exactly the same, regardless of appearance. A roof on a house that looks nice may be worse than a property with trash all over the living room. You really never know what you are going to find until you dig a little deeper and check out the bones of the property.
Appearance can make you interested in the property, but the structure is where the value is. Between the foundation, roof, electricals and plumbing, there are potentially thousands of dollars in repairs that could be needed if you overlook these areas. If you have to replace the water heater or there are issues in the foundation, a seemingly solid property with a good price point will completely change. These areas are far more important than how the bathroom looks or what type of countertop is in the kitchen. You can change or alter mostly everything in a property rather quickly. If big ticket items need to be replaced, they will directly impact the bottom line and thus the value of the property.
The idea of appearance also works in reverse. If you have ever bought a foreclosed or bank owned property, you know that some may not come in great condition. If you are inexperienced or you don’t have a vision of the finished product, you may miss out on many good deals. Some of the best deals are the ones that you want to run out of as soon as you walk in. There may be pet urine on the rugs and food in the kitchen that hasn’t been touched in months. The house could have a horrible odor and there could be unwanted pets in the basement. As hard as it may be, you need to look behind these things and think about the house will look when you are done. Is the structure solid, are there new windows and is the roof updated? All it takes is one day and a cleaning crew to remove the rugs and clean the house out. If all you are looking at is the mess, you can overlook the big picture which can be a very profitable property.
Your investing goal should be to make a profit and not just accumulate properties. Aside from buying in the best locations, one of the ways to add value to a property is in the work you do to it. The ugly properties are the ones that usually come with the smallest price tags. If you can show the seller that what they are selling is a mess and needs thousands of dollars to update, you may be able to get it at your price. From there, you can add value with the right work that you put in. You will never get this opportunity if you would have walked into the house and walked right back out. It takes experience, but the ability to look past the current condition of a property is one of the hidden secrets in making money in real estate.
If you walk into a house and smell paint, it may have been done to conceal a crack in the ceiling or mold on the basement walls. If there are new rugs in a bedroom, in an otherwise non updated house, it could be a sign that something may be covered up. There could be mold issues in the basement of a property with someone living in it just as easily as a vacant property. If you rely on appearances alone, even the best investors can be deceived into thinking everything is fine. You need to put the same due diligence on every purchase you make. The minute you let your guard down is the time when you will buy a property that needs thousands of dollars in unexpected repairs.
Some of the best and worst deals you make can be directly related to the condition of the property. Don’t get fooled by what you see the first time you open the door. Appearances can provide a good first impression, but they won’t tell you the full story.