Purposeful investing comes into play when you do your diligence in finding the best home prices in undervalued markets.
As housing markets improve homeowners are excited to know the value is rising on their properties. Investors love when property values rise as this is said to be one of (if not the most) lucrative wealth building principals an investor can have. It is imperative for investors to get in early to ride the wave of appreciation. Purchasing at the correct time within the market is critical. The end result is to buy when the market is low and sell when the market is high.
Buy low and sell high is the market concept everyone has heard of but most do not execute. The reason people do the opposite of what wisdom would suggest is simply that they do not know how. Most get wrapped up in what everyone else is doing and follow the trend. Getting educated on how to buy low and sell high takes some time and diligence. Today I want to cover a couple of the best pieces of diligence for buying low so that later you can sell high.
Do not shop price: yes indeed you want a good value, but most decide how much they feel is the right price to pay for a property and then set out to find a property for that price. This is backward thinking. You can get great cash flow while also maximizing the potential for appreciation. In doing so you get two wealth building principals. Cash flow and growth.
First you want to establish what the median home price is in a perspective area. Typically the fastest growing property values will be the homes that are priced at the median home price for that area. So if the market has a median home price of $100,000 then you want to invest in a property that has a value of $100,000. Now you may not want to pay this much but after buying it and repairing it you want the ARP (After Repair Price) to be $100k.
Your money is made on the exit by strategically buying a property that is best poised for growth. The properties that appreciate and give the best increase in values will be those that are in the median price point of a market. Buying lower priced homes subjects you to more repairs and less desirable neighborhoods for your end user buyer. Buying too high risks cash flow during your hold years.
Buy in currently undervalued markets: if a median price home represents the best investment within the market then it is imperative (for capturing capital growth (home price appreciation) that the market can indeed sustain growth. To do this you want to establish areas that are currently undervalued.
Simply put, can a family who earns a median income afford to purchase the median priced home? When a market’s income is keeping up with the home prices the market will be sustainable and values can rise. When the opposite happens the values will start to decline. Many people actually invest without looking at this simple principle of market affordability, (well, quite simply, they lose money) or at least the potential of capital growth.
Take a look at this newly released report. You will see in the 25 largest cities in the U.S. (at the time of this posting) Atlanta is the most affordable market. More people can afford to buy a home in Atlanta than any other city. In this market, investors know that buying a median priced home will have the best potential for value appreciation than any other market in the country.