Financial planning and preparing for retirement are two of the hottest topics for baby boomers. With the Dow Jones Industrial Average hovering around 17,000, the big profits have already been made in the stock market. Bonds may be nearly risk-free, but they’re paying next to nothing.
The big question becomes, where can a successful person achieve a solid return with minimal risk? Based on recent history, the answer is real estate and, it’s not just location, location, location! People are buying real estate because of the “WOW factor”. In most cases, when someone’s looking to buy a home, they want to fall in love with it the first time they walk through the door. When they do, they’re usually willing to pay more for the house they really like, even if it means overpaying.
The key is to take this well-known fact, and make it work for you financially. Consider the following:
If you’re a buyer, use the strategy that’s been employed by hedge funds and equity funds over the past year or two. Find a home that is structurally sound, but needs work cosmetically. These properties can be picked up for less than market value. Make sure you use a good home inspector to ensure that there will be no major expense that you overlooked. Once you own the home, you can either do the cosmetic work yourself, or hire handyman to paint, replace carpets/flooring, landscaping, etc.
You may even want to hire a professional to stage the property. Finally, find a good real estate agent to represent you when you resell the property. Typically, returns are averaging 20% to 30%, over a period of 6 to 8 months if you’re paying cash, from start to finish for each project.
If you apply the same strategy to a $200,000 home financed with 20% down, the return can be astronomical. If you resell the home for $290,000, after paying a real estate commission, repair costs and other expenses of about $30,000, your initial investment of $40,000 could yield you a profit of $60,000. That’s 150% return!