Aaron Kirman, star of CNBC’s ‘Listing Impossible,’ joins “The Exchange” to discuss some of the biggest mistakes he sees when people try to sell million-dollar homes.
We hear all the time that buying the cheapest house on the block is a bad idea. “It won’t appeal to buyers when you’re ready to sell,” real estate agents will tell you. But depending on your priorities and financial situation, it can pay to spend less than you can afford.
There are no “secrets” when it comes to homebuying. But unless you’re super wealthy and have millions in the bank, buying the cheapest house on the best block (in the best neighborhood) is a smart decision. Most buyers avoid this, but when you think differently from everyone else, you can get significantly higher returns.
I once made the mistake of buying the most expensive house on the block because I thought it’d help me break resale records. But nope - that didn’t happen. My property value went down due to the surrounding houses that sold for much cheaper than they should have. And because the pool of buyers looking for the most expensive houses is extremely small, I also had a hard time selling.
So I took a major hit and lost a lot of money. (Granted, I started my career in real estate at a young age, so I had a lot of learning to do. Luckily, my poor decisions taught me so much that I reached millionaire status at 26.)
‘Location, location, location’
I’m not saying, “Find the cheapest house and buy it now!” You’ll only get high returns if you’re buying on the best block in the best neighborhood. Don’t waste your time looking at a block full of dilapidated houses in a bad (or even mediocre) neighborhood.
As a homeowner, you can do whatever you want with your house: Remodel the interiors, change the exterior facade, paint it a different color, update the landscaping and so on. But the one thing you can’t do is change the location. Enter the real estate adage: “Location, location, location.”
Do your research. Talk to locals if you can. Get in the car and drive around until know the area inside out. Are there good schools? Low crime rates? Lots of shopping and entertainment? Good transportation and walkability? Above-average job growth? Choose a good location and you’ll likely get significant increases in property value. Choose a bad location and you’re screwed.
Advantages of buying the cheapest house on the best block
It’s an affordable way to gain access to an expensive neighborhood. The best locations are usually the most unaffordable. Buying the cheapest house allows you to join the club.
You’re almost guaranteed a property value boost. Your house will be worth a lot more once the expensive houses on your block get sold. Obviously, owners of the most expensive houses don’t get to enjoy this perk.
You’ll get more interested buyers. As I mentioned earlier, most buyers stick to purchasing houses priced in the middle range - not the most expensive, and not the least expensive. So even if you do the minimum amount of renovations, you’ll still hit the market at higher price and get a lot of interested buyers.
You could buy it at an even cheaper price. Not all buyers have the confidence to undertake a major renovation project, so you’ll have fewer buyers to bid against when it comes time to strike a deal. That said, you might be able to negotiate the “already-cheap” price down to an even lower number.
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