While most homeowners buy a house or condo for emotional and lifestyle reasons, most would also prefer a real estate transaction that has a positive impact on their net worth. A home purchase can enhance savings, create profits through a sale or eventually bring cash flow for retirement. Here are the best ways to maximize your financial strength through the house that you occupy.
Buy a Fixer-Upper. When you pay for a prior owner’s renovations you are always paying more than the cost. The added premium you pay accounts for the risk, time and effort invested in getting that house to showroom condition. Fixer-uppers provide the opportunity to create value at a lower cost that can result in a profitable sale.
Plan the Timing of Your Purchase and Sale based on Existing and Planned Improvements. If you are not interested in renovating yourself, you have the option of buying a home that has already been renovated. In this case, the aim is to buy when a house is in brand new condition and sell before it requires major upgrades. On the purchase side, make sure all major systems of your home have actually been renovated/upgraded/replaced before you pay a premium price per square foot. This means avoiding bidding wars that inflate value if all or most major systems, materials and features are not less than a couple of years old. On the selling side, this strategy requires selling your house before new renovations start to become dated, major systems need repairs, or demographic shifts make your home less desirable. Homes still command a premium price when major systems are newer (and not brand new) when compared to those that are dated with multiple systems at mid-lifespan.
Keep it Forever and Pay Off the Mortgage. Forever might seem extreme, but the reality is that real estate is most profitable when mortgages are paid off and rental income is coming in. Unfortunately, most homeowners never get to that stage. Some also fail to buy homes that can be easily rented when the time comes to downsize or relocate.
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