Real Estate- When, where and what to buy

I have heard dozens of formulas for buying Real Estate. One group says this while that investor preaches that. It starts to get confusing. How do you determine what Real Estate you should buy?

So let’s stop for a minute and go over some basics:

• You need to have cash available.
• You need to have a lending solution.
• You need to NOT buy anything else.

For the sake of argument, we are going to assume that you are buying this Real Estate conventionally. You have been minding your financial p’s and q’s. You are saving money for a down payment. You are paying your bills and managing your debt to raise your credit score. Now what?

Before you jump in, how do you decide what, where and when to buy? 

Stay tuned and I will give you some very valuable insights that will help you answer those questions.

I am John D. Suttles In 2004 I was Teaching highschool  and was talked into getting my Real Estate license. I fell in love with Real Estate and jumped in with both feet. In 2007 we lost everything. I found work wherever I could and started researching to find out where I had gone wrong. In 2012 we started a property maintenance company in the Great Smoky Mtns area of East TN. Which is where I am originally  from, working on cabins. Now, almost 8 years later, I have written the books The Smoky Mtn. Cabin Owners Manual and The Business of Owning a Rental Cabin. 

Having bought, sold, renovated, rented, invested and researched Real Estate, I am here to share with you some of the lessons I have learned.

So lets get to it.

Before you jump in, how do you decide what, where and when to buy? 

When- this is a hard one. As anyone that purchased RE in 2006 will tell you, you can buy at the wrong time. My Wife and I were looking at a small farm yesterday. Someone purchased this parcel in ‘96 for $60k fixed it up and made it beautiful. It sold in ‘05 for $375k and again in ‘08 for $225 that owner lost $150k! The property is currently listed at over $500k.

So deciding if this is the right time to buy is tricky. And honestly there are dozens of other factors that come into play. My suggestion here is to find a teacher that is willing to walk you through the process if you are new or a great Realtor that knows the market if you are seasoned. Either way it boils down to this: get some great advice from some very credible resources before pulling the trigger.

Where- ah yes, que the cliche. The three most important factors in Real Estate are: Location, Location, Location.

Why is location so critical? Here is a story that taught me the lesson. I am selling an investment property, not as a Realtor, as an Investor. When the Realtor sits down and shows us the comps, I realize that if I was selling a property 1 block away I could ask twice as much for it. Yep, I block away was worth 2x the money. That was an extreme case but it taught me the lesson. Location is paramount!

So where do you buy? Well… that really comes down to your end goals. In our corner of the world, buying a cabin with a view can cost you about $300 per square foot. Whereas a house in a subdivision is about $150 per sqft. I think you see my point. If you want a starter home then the cabin with a view is probably not the best choice. If you are trying to invest to keep from paying capital gains the Cabin will be a better option because your investment dollars are much easier to “hide” in the cabins expenses. But quite honestly that brings us to the last point:

What to buy- how do you determine what you can buy. Yes, down payment, investment capital, loan qualification will all have a say, but is that the real answer to WHAT YOU SHOULD BUY? 

In 2005, I was working as a Realtor for a Broker by the name of Colene Dooley. She was a sweetheart. She had been in the business for 35 years and had beaten Cancer 5 times! (A battle she finally retired from just a few years ago) Colene, saw how young and dumb I was and took me under her wing. I became her Personal Assistant and we worked on some amazing deals. We once sold a piece of property for the first time ever! It had been deeded to the family during the Civil War.  Back to the point. Colene sat me down and showed me why buying RE is so important as an investment. She told me that as a rule Real Estate prices double every 10 years. But the thing that she told me about how to decide if I could afford to buy a property made the most difference. 

“John, when you are ready to buy a property, here is a secret that very few people know. Real Estate costs about 1% of its value per month to operate; so figure out what you can afford per month and purchase accordingly.”

Using that information, I have since realized how that affects the owner. It is not 1% of what it cost originally. It is 1% of the current value. Sometimes higher, sometimes lower, but if you budget that way when a major repair comes then it will be expected. 

So if you buy a property for $100,000 then it should cost about $1,000 per month to operate it. In 5 years the property will be worth $125,000. It should cost about $1,250 per month to operate after you have owned it for 10 years it will probably be valued at $190k and cost $1,900 per month, and so on.

If that sounds scary, you are looking at the wrong data set. the reason it costs so much more is due to inflation. Do you remember how much a meal at McDonalds cost 10 years ago? 

Here is a quick personal story. When I started the property maintenance company we bought lots of 2×4’s. The price was about $1.89 per board. Yesterday, I paid $3.69. That is 7 years of inflation! So realize that when your property will need maintenance in the future, it will cost more than it does now. But your property will be worth much more than it is now! 

The miracle of owning property is that you gain equity while you are using it. Very few things in life have that quality.