Welcome,    

Below are excerpts from my book.  I am grateful to clients for their business, and I am genuinely interested in helping them make profitable Real Estate decisions the rest of your life.  I never lose sight of the value of my clients’ business, and I continue to work to provide concrete value to make each Real Estate transaction as personally rewarding as possible.

I provide these ideas in writing because there are so many complex considerations to help each client make informed decisions.  I have written this book to reward the clients who have put their trust in me.  If you understand the ideas in this book, you will be more financially successful and independent.  You will know better than most of your peers how to profit from your Real Estate decisions.

I hope you will mark up the book and make it your own.  I hope you write in the margins and dog ear the pages.  I hope you write down your comments.  There are few skills as financially valuable to the average person as knowing how to find, enjoy, and make the most of your Real Estate.  Please send your feedback to me.

I hope you’ll visit my website:  www.boisesearch.com. 

I have a standing invitation with all my past clients.  If you ever would like Lori and me to take you out to eat at your favorite restaurant in Boise, call us anytime when you are available and we’ll make it happen.  We love to visit with good people involved in profitable work.

Thank you for your referrals, my business depends on them. I will stay in contact with you and continue to work to return value to you.

Thank you,  

Mark Ballard 

Table of Contents

What Is This Book Not About?

What Can A Person Of Average Intelligence And Income Do By Applying The Ideas In This Book?

How Will Reading This Book Help You Find And Own A Higher Value Home?

Why Is Real Estate Important?

Receiving The Most From These Ideas

Why Are Single Family Residences Such Good Investments?
What Is An “Asset”?
Why Focus So Much On Learning How To Profit From Real Estate?  Wouldn’t It Be Equally Valuable To Learn How To Trade Stocks?

If You’re Going To Own A Home, You Might As Well Profit From It

Why Do Recent Federal Tax Code Changes Make Your Real Estate Choices So Financially Important?

What Can You Do When You Simply Don’t Have Enough Money To Be Able To Make Better Real Estate Decisions?

Buyers:  When Should A Person Not Buy a Home?

Buyers:  Most Buyers Are Not Critical Enough About Selecting The Home They Buy

Buyers:  Should You Consider Mobile Or Manufactured Housing?

Buyers:  If You Can’t Afford To Buy A Home In Your Area, What Are The Next Best Alternatives?

Buyers:  Why Is Learning How To Make Smart Real Estate Decisions Always Important, But Particularly When You’re Buying Your First Home?

Buyers:  How To Find A Profitable Home

Buyers:  Location, Location, Location?

Buyers:  The Importance Of Distance

Buyers:  How Does A Smart Buyer See What Most Buyers Don't See?

Buyers:  General Considerations

Buyers:  Choosing The Right Home

Buyers:  Practical Steps To Finding the Diamond in the Rough and Finding Unrecognized Value.

How Is Finding The Right Home Different From Finding Other Types Of Quality Property?

Work Backwards 

Buyers:  Challenging the Homebuying Clichés

1) Should You Find The Lowest Priced Home In The Best Neighborhood?

2) Should You Buy The “Lowest Cost Per Square Foot” Home In A Particular Neighborhood?

- How Does Evaluating “Cost Per Square Foot” Change For Various Size Homes?

3) Should You Consider A Starter Home In A New Home Community?

            4) Should You Buy Low, Sell High?

5) Should You Buy "The Most House You Can Afford"? 

6) How Much House Is “As Much As You Can Afford”?

Buyers:  The Concept Of “Ownership”

Buyers:  Thinking Of Buying A Home To Remodel?

Buyers:  Remodeling Options to Consider When Looking To Buy

Buyers:  What To Offer?

Buyers:  Who Is Going To Pay For What?

Buyers:  Why Is A Home Inspection Worth So Much To You?

Buyers:  What Should Be Requested In The “Request for Repairs” After Receiving A Home Inspection?   What Should You Not Ask To Be Repaired?

Buyers:  The Loan - The Real Money

Buyers:  How Do You Find A Great Home Insurance Policy?

Buyers:  Top 10 Signs You're Not Looking At A Great House

Buyers:  What Are The Practical Reasons It Is Profitable To Own A Home?

Buyers:  Top 10 Signs You Might Be Working With a Bad Real Estate Advisor

Buyers:  Negotiating Considerations

Buyers:  The Importance Of Having Your Own Independent Agent

Buyers:  The Importance Of Fun

Buyers:  Getting The Most Value From Your Home:  Steps To Take Right After You’ve Bought The Home.

Buyers & Sellers:  The Shortest And Surest Path To Securing Financial Success Is To Follow The Path And Counsel Of People Who Have Done It Successfully Many Times Before

Buyers & Sellers:  First, Before Choosing One Real Estate Advisor

Buyers & Sellers:  Unprofitable Reasons To Choose A Real Estate Advisor

Buyers & Sellers:  Characteristics Of A Competent Real Estate Advisor

Buyers & Sellers:  Sometimes a written contract is not worth the paper it’s written on.  And if that’s true, what can you do about it?

Investors:  The First Investment Property You Should Buy Is Your New Residence

Investors:  What Is A “Normal Status” To Try To Maintain If You Want To Profit From Real Estate?

Investors:  How To Pick A Good Rental

 What Is This Book Not About?

This book is not about encouraging people to buy properties with nothing down.

This book is not "10 Easy Ways To Get Rich In Real Estate".  

This book ain't about leveraging a small amount of assets and risking your financial stability in hopes of making a series of perfect choices. 

This book is not the first book in a series of fantastic systems and cassette tapes, designed to get you to buy ever more expensive and intensive training programs, including a weekend seminar entitled: "Expert Immersion :  Jazz Up Your Wealth"

This book is not sexy.

This book is not about shortcuts or "secret" ways to trick the system.

This book doesn't suggest strategies that rely on a growing economy. 

This book does not aspire to teach people how to get rich so they can “do nothing” and live off the checks coming in.

This book doesn't promise something for nothing.

What Can A Person Of Average Intelligence And Income Do By Applying The Ideas In This Book?

1)  They can become more financially independent.

Have you ever noticed how many of your wealthy friends and relatives own quite a bit of Real Estate?  Do they live in a smart home?  It's more than a common coincidence that wealth and Real Estate co-exist.  The fact that wealthy people have good Real Estate is not simply because they had a lot of money and needed to spend it on something.  Making good Real Estate decisions enables you to trade and improve homes so that the Real Estate itself creates more wealth. 

There are few other assets classes that do as much as Real Estate can do.  No matter whether your income is large or small, Real Estate has been and continues to be one of the best ways to save, protect, tax-shelter, transfer, and grow wealth.  This book will show you many ways to use Real Estate to build your wealth, using long proven methods, uncommon sense, and current tax advantages. 

This book does not teach a person how to “trade” or “persuade” your way to wealth.  This book focuses on teaching people how to find unrecognized existing asset value, how to add value to that asset, and how to realize the full gain potential for that asset.

2)  They can earn and create pleasant housing for themself and their family.

Do you remember one house that a friend or relative owned when you were growing up?  Do you remember how that environment encouraged so much fun and helped create so many wonderful memories?  This book will help you own a house like that if you want to.

3)  By relieving their own financial burdens, they can have more flexibility to do the type of work and activities they hope to do.

If you make good Real Estate decisions, your homes will work hard to support you.  If you make poor decisions, you'll likely work very hard to support poor homes. 

The consequences of Real Estate decisions create more effect on an average person's life than most people will ever know.  What most people don't know about developing their own homes limits them unnecessarily and tremendously for their whole lives.  There probably isn't one person reading this book who doesn't know someone who is "trapped" financially or mentally in a house.  They don't have to be trapped.  There are ways of becoming free.

Real Estate is a great equalizer and a great enabler. 

If I sat three guys down in a row of three chairs, all three having similar appearance and being similar age, and I could ask them their knowledge of only one topic to determine their wealth potential, I would ask them about Real Estate.  I wouldn’t ask them about their knowledge of stock investing, how to run a company, their profession, or their education degrees.  The one area of knowledge I would say can most help the most people achieve financial success is Real Estate.

One man could be a baker, the other a software programmer, and the third an attorney.   If the baker new how to develop their home and a couple rental homes, I’d wager that the baker would have the most likely chance of being financially stable and independent. 

You don’t have to have a great memory, be a good writer, be attractive, be talented, be able to do complex math, or be smart to grow your assets using Real Estate.

Conversely, a person can be brilliant.  A valedictorian (not sure that’s spelled right J).  They can have a couple doctorate degrees.  But if they don’t understand the consequences of their Real Estate decisions, they will likely spend incredible amounts of intellect and time making up for it.

How Will Reading This Book Help You Find And Own A Higher Value Home?

First, it's been said that the first step to wisdom is to ask better questions.  This book will teach you the questions you need to answer to make profitable homebuying decisions.  The Table of Contents gives a good outline of the questions addressed in this book.

Second, the book will provide competent and hopefully uncommonly insightful answers to these questions.

Third, you’ll be able discern between similarly priced homes which home:

a)   is a better value,

b)   will likely appreciate faster,

c)   will be less expensive to improve,

d)   will provide the most return on improvement dollars, and

e)   will be easier to resell.

Fourth, if you achieve the first three objectives above, then not only will you have the practical knowledge how to find and own a better home, but you’ll also be able to show others that you know what you are doing.  Why is it important that you show others that you know what you are doing?  Because like most big projects, buying a quality home is generally much easier with the cooperation of capable allies.

For example, if you want to improve the quality of service your Realtor provides, give them a copy of this book.  Give them notice of your high expectations and your level of knowledge on the topic.  Their quality of service will improve for you.

Another example, if you want your Lender to give you a higher loan approval, show them how the particular home you’ve chosen will be excellent security for the loan.  Show them that your purchase price is less than the homes appraised and assessed values.  You’ll be surprised how you can get $10 to $20,000 more in loan approval if you present a quality home.  You’ll be impressed how your clear understanding of Real Estate purchasing and value will be an important X factor to making you approved for a higher value loan.

A third example, if you want your family to financially assist you more with your purchase, then give them a copy of this book.  Talk about the concepts in this book.  Show them your knowledge.  If they understand that your goal is to purchase a valuable home asset that will strengthen your family’s financial stability, then showing your understanding of the principles in this book will improve the degree and likelihood your family will support you financially.  Plus, if the book has helped you make more profitable decisions, sharing the book with your family may have the added benefit of helping them also.

People regularly pay too much for houses.  They don’t know how to negotiate.  They buy houses that will not appreciate well.  But all of those errors are mistakes in knowledge that can almost always be avoided ahead of time. 

Why Is Real Estate Important?

I grew up in a family that rented out rental homes.  Growing up, I did primarily the remodeling grunt work and I did not understand the financial rewards and stability that Real Estate can create.  Real Estate always seemed so inartistic and boring to me.  I did not experience the many negatives of living in bad housing.   I did not understand the unprofitability of long term renting.  I did not understand the pleasure of buying, improving, and living in great homes.

I was a good student in school.   I was good at identifying problems.  At my different jobs, I was good at solving problems and improving efficiencies.  Like everyone reading this book, I always had potential.  I had the most earnest and good intentions.  But I misdirected and underutilized my skills for many years.  It was not until I incorporated better Real Estate decisions, and it was not until I learned more about what makes Real Estate valuable, that I began to be of more service and more value to my family, peers, and clients.

This book outlines how an average person of average intelligence can make better Real Estate decisions.  It does not matter what your career is, what stage of life you are in, or how much money you have.  Improved Real Estate decisions will lead to more financial independence and personal freedom.

Receiving The Most From These Ideas

I have a relative, who shall remain unnamed, who no matter what you tell him, his knee jerk response is essentially, “That’s right.  I’ve always done that.”  You could discover a new cure for cancer and share it for the first time with only him and he would say, “That makes sense.  I’ve always thought that’s how you did it.” 

It’s of little worth to be knowledgeable (or to appear knowledgeable) if you’re not compassionately and effectively using the knowledge.

Mark McCormack once commented in his book “What They Don’t Teach You at Harvard Business School” that one of the worst things you can do when reading a book is to constantly say to yourself, “Oh yeah, I’m already doing that.”  He suggested it is better when reading to ask yourself, “Is it something I am doing?  If so, could I do it better?”  

I hope you damage this book.  I hope you dog ear pages that have ideas you might revisit.  I hope you cross out ideas you don’t agree with.  But if you agree with ideas in this book, the ideas are going to be more profitable for you if you ask yourself, “Should I apply the idea?”  If you think you should, then write down in the margins a date and time by which you will take action.  Create a concrete expectation.  Adjust it later if new information changes your mind, but if you make a written action dateline, it may be more profitable for you and your family.

Some people may think, “I bought a home and everything turned out okay.  So why should I learn more about Real Estate?”  Real Estate is one area that can be very forgiving – people with little knowledge can still profit from their Real Estate purchases.  But this book is not for people that are looking to do “okay”.  And this book is not for people who “just want to buy a nice house.”  This book is for people who want to safeguard their major purchase, build and strengthen their family’s assets, profit from owning appreciating property, and someday live in a very nice house.

Why Are Single Family Residences Such Good Investments?

The kind of Real Estate investing taught in this book does a better job of safeguarding principal than other types of similar high return investments.

I’ve worked with a lot of people in big investments and many types of investments.  I’ve never had someone say to me, “I lost my shirt when I bought that house.  It’s value tanked.”  I understand that there are “Real Estate bubble” markets where home prices fall, like the Silicon Valley after the internet boom ended.  But 99% of people in 99% of the U.S. don’t live in bubble markets.  And if you buy Real Estate using the principles contained in this book, you won’t be buying Real Estate in a bubble market.

Making good Real Estate decisions does not require a person to be able to predict the future of the economy.

I don’t know what the dollar is going to do against the Yen or Euro in the next 10 years.  I can’t tell you whether a particular company will be around in 10 years.  I don’t know if the price of Pork Bellies is going up.  And what’s more important:  as an individual, I cannot effect those trends.

With Real Estate, I, with help from my friends, family, and colleagues, can improve the value of any home.

The stock market may crash.  The economy may head into a decade of recession.  The dollar may be devalued.  Regardless, the value of homes will always remain strong and likely go up because there is always tremendous time, labor, and raw material expenses that goes into creating in a great home in a great location. 

Unlike stocks, bonds or other investments, a home’s value can be verified in person and thoroughly.  It’s value can be compared to other concrete, like kind assets. 

Unlike stocks or bonds, a home’s value cannot be primarily illusion because a person can insure against defects in the title.  And the odds of potentially having a defect in a title that devalues your principal investment in Real Estate are astronomically less likely than a person losing similar principal value in other types of investments.

I always smirk when I hear investment planners make the statement, “Your investment asset allocation should be relative to your long term strategy and your risk tolerance.”  I’ll tell you what my risk tolerance is:  If I’ve earned a dollar, I’m going to keep it unless I trade it for something of value.   I have almost zero tolerance for giving my money to other people and allowing them the possibility of misusing it. 

No one will ever care about your money as much as you do.  No one.

Don’t get me wrong.  I don’t believe in putting all your eggs in a Real Estate basket.  Diversification is important.  But securing ownership of a safe, appreciating home for your family is one of the best baskets to put eggs in.  (Mmmm . . . eggs – I jest.)

For these and other reasons that will be addressed in other areas of this book, Real Estate is one of the safest and most profitable types of assets a person can learn to assess, develop, and trade.

What Is An “Asset”?

The answer to this question is more than can be addressed in one chapter of a Real Estate book.  But understanding what makes an “asset” valuable or worthless is one of the most profitable skills to learn in life.  And ironically, most people don’t have a mature and advanced understanding of what makes an asset valuable.  To learn more about assets in general, how to value them, and how to improve their value, please read:  Creating Assets:  How To Create And Develop Assets. 

Why Focus So Much On Learning How To Profit From Real Estate?  Wouldn’t It Be Equally Valuable To Learn How To Trade Stocks?

If you showed me three men, one with $600,000 inheritance in cash in the bank, another with $600,000 in stock that they have saved, and a third who owned three $200,000 homes, one he lived in and two he rented – I’d place my money on the third man.  Why?  Because:

1)  Stocks and other types of investments can be too liquid and too fast.

When a person has a lot of assets in stock or cash, it is too easy to lose money by misspending it.  Assets in stock or cash are sometimes “too liquid”.   It is too easy to make only one bad stock “investment” decision or one bad purchase.  It can take only one bad decision for every ten good decisions to disable a person financially.  Purchases of high cost personal property and securities are sometimes too easy and accessible.  Real Estate requires thoughtfulness.  It almost always requires the review of several people and the passage of at least a few weeks to make a major decision.  

2)  I prefer to place my efforts and work with people who are building concrete benefits instead of just timing and trading. 

I like supporting people who are building pleasant things.  I know there are brilliant people who can “time” and “trade” assets and make themselves and their business partners money simply from “trading”.  But I prefer to put my thoughts and work into helping people who are building homes, improving individual lives, and enriching their close circles of friends and family.

3)   It’s not possible to insure against stock losses.

For all the upside that stocks and securities generally bring, there is no way an individual can insure against significant stock losses.  With Real Estate, if your house burns down or there is a problem with the “accounting” or “title”, you can insure against those potential catastrophic losses.  And almost all homeowners have those insurances.  Conversely, if your stock or fund tumbles because of “accounting” errors or corporate misdeeds, you’re out of luck.  You have no insurance to protect against that.  And while you could bring a lawsuit to try and get back some of your losses, good luck getting blood from that turnip. 

4)   An average individual cannot personally effect whether a stock value goes up or down.  

Conversely, with a home, you can greatly effect the accounting, business practices, and quality of the investment.  It’s within your control.  With a stock, even if times are good and the market’s going up, you can lose your shirt and be powerless to do anything about a collapsing stock or fund price.

5)  If you really want to make serious money in stocks, it’s a full time endeavor to equal the gains available in Real Estate.  With stocks, to receive comparable returns, you’ll constantly have to expose yourself to much greater risk of loss than you do with Real Estate. 

To equal the gains available in Real Estate, with stocks you’ll have to be both smart and very lucky.  Brilliant, veterans of the stock market make bad financial decisions all the time.  Conversely, you don’t commonly find people who’ve been successfully developing rentals for 10 years still making bad financial Real Estate purchase decisions.   

With Real Estate, you don’t have to be “lucky” because the methods of achieving profitability are far more stable and predictable.

To lose money in Real Estate, you usually have to have your head in the sand for a long time, or you don’t know what you’re doing, or you’re not learning from your mistakes – and even if you lose money, you rarely lose more than 20% of your principal.  Which is far less than what a person loses when an average stock fails. 

But a 20% principal loss is still huge in Real Estate because the asset value is so high.  It’s an even bigger loss when 100% or nearly 100% of the home’s value (it’s principal) is borrowed money.  Therefore, you want to gain as much expertise on how to buy Real Estate before you buy.

Stocks and mutual funds are valuable and do serve good investment purposes.  History has shown that they appreciate steadily over time.  Stocks have some advantages over houses:  they’re easier to buy, it’s easier to diversify within the asset class, and they require less work.  I have always placed a minor portion of my assets in this type of investment.  But I personally believe stocks are too risky for individuals to place the majority of their personal and family assets in them.

If You’re Going To Own A Home, You Might As Well Profit From It

While most Buyers are very selective about what they want in a home, most don’t know how to select a home that will appreciate well for their area, and that is because no one ever taught them how to do it.  Finding a good home is both difficult and worthwhile.

I’m not suggesting our educational and training systems should teach more about how to make good Real Estate decisions, because I believe they have enough on their plate already.  But knowledge of Real Estate is one of the few things that can separate people who “just get by” and people who “do well”.  

There is a Rush song that has a great lyric from their song Free Will, “If you choose not to decide, you still have made a choice.”  This idea is true in so many important areas of life. 

My belief is that if you choose not to profit from your Real Estate decisions, or if you don’t wish to decide whether to work to be profitable;  either of those two decisions will unnecessarily negatively effect you and your family.  

Many people consider the characteristics of their home and think, “It’s just fine. It’s not bad, and I’m not losing money.”   But in order to sincerely evaluate whether you are “losing” assets, either financial or personal, you must evaluate if there are clearly better alternatives. 

Are there other homes in your area that will better:

a)  place you in one of the best appreciating homes in your area

b)  allow your home improvement dollars to be fully recouped or profited from?

c)  make your quality of life and quality of environment as good as they can be in your price range?

While this book focuses on the financial benefits of Real Estate, the book also discusses the enjoyment and personal benefits of smart homes.  The two types of benefits are rarely conflicting. 

By owning a good house, you can be sitting on a gold mine.  Which brings up a great comparison.  The average price of gold per once in 1984 was $300.00.  Today, it is valued at $410.00.  Gold increased in value by about 33% over 20 years.  Compare that return to the average home price increase for your area.  In many areas in the U.S., average home prices have gone up 200% or more since 1984.  Homes are far more enjoyable, usable, and appreciative assets than gold.

Why Do Recent Federal Tax Code Changes Make Your Real Estate Choices So Financially Important?

In a nutshell, all you need to understand is a general principle:  most of the time, if you’ve lived in one house for at least 2 years, when you sell that house, you get all of your capital gains tax free (up to $250,000).

If you make money in the stock market, or in selling a million buggy whips, those two successful activities will be taxed (in general, the latter more heavily than the former). 

So if you determine you might make as much money improving the value of your residence as in some other profitable enterprise, the Real Estate activity may be more profitable after taxes.  And you get to enjoy the pleasure of your residence’ improvements while you continue to live there.

What Can You Do When You Simply Don’t Have Enough Money To Be Able To Make Better Real Estate Decisions?

The answer to this question requires covering more topics and information than can be covered in one chapter of a Real Estate book.   If you would like to learn how to improve your income and increase your assets, I’ve provided recommendations in a book entitled:   Creating Assets:  How To Create And Develop Assets.  It is an investment, career and business development guide to becoming financially independent. 

Buyers:  When Should You Not Buy a Home?

1)  When you really can’t afford it.

2)  When you don’t plan to live in your current area for at least 2 years, unless you plan to fix the home up.

3)  When you don’t know how to choose a home that will both meet your interests for the next few years and be profitable when you sell it.

4)  When you don’t know where the best neighborhoods and schools are in your area.

Buyers:  Most Buyers Are Not Critical Enough About Selecting The Home They Buy

This may sound like blasphemy coming from a person who makes their living selling houses.  What do I care if people buy and sell often?   Would I not profit more if more people bought poor houses and then had to buy and sell more often?

I care for two main reasons:

1)  I genuinely do want my clients to do very well financially.  The fact I wrote this book speaks to my level of commitment to helping people become more financially independent. 

2)  It breaks my heart when someone calls me within a year of buying a home because they want to sell it.  It is almost always a financial loss, even with the best of assistance, to sell a home (with no improvements) within one year of buying it.

I focus on helping the best clients find the best homes.  That has been the secret to my success.  If you help people make money and find a good home to live in, you will succeed as a Real Estate Advisor.  The repeat business and referrals alone will generate enough money to pay most of your bills.  It is a win-win situation.

Buyers:  Should You Consider Mobile Or Manufactured Housing?

The general answer is no.  The only exception would be if housing is so tight in your area, that there is no single family housing or any type of property to rent available in your area.

Instead of buying a mobile or manufactured home, save your money. 

I’ve heard salesman try and tell me all the positive characteristics of manufactured/mobile housing.  I don’t agree with their assertions that the homes are of similar quality to stick built homes.  And it is a moot point if the homes costs less per square foot.

Remember, the intent of this book is not to help people only find pleasant, quality housing.  The intent of this book is to achieve those goals and to help you make profitable Real Estate decisions.

When considering a manufactured home, does the distinction of “owned land” versus “rented land” matter?  Yes, but not in the big picture.  Either option generally still leads to a depreciating asset.  Generally, rented land is a worse option because you can pay of the house structure and still pay rent forever.  But owning the land is not much better.

At the end of the day, the problems with manufactured and mobile housing are:

1)  Stick built homes almost always appreciate faster.

2)  Fair or not, manufactured homes will probably always have depreciating stigmas associated with them such as, “less safe”, “less private”, “lower quality neighbors”, “poorer quality building standards”, etc.

3)  Manufactured homes usually depreciate in value.

4)  Manufactured and mobile housing may not be eligible for as many tax deductions, particularly when they are personal property, and they have not been converted to Real Property.

I don’t believe in people putting large amounts of their time and resources into depreciating assets, when there are clearly more-profitable assets they can invest in.

I’ve only helped one client buy a manufactured home in my career.  (I’ve tried to help several sell their manufactured homes.)  At the time, I didn’t know any better.  The home even had the advantages of being on 5 acres, next to wide open BLM land, and it was already on a foundation.  My client had owned many houses before, and he knew what he wanted.  He was savvy at improving houses.  The home had all that he wanted in a home.  He bought it over my concerns and cautions.  I provided excellent service and we negotiated a low price.  But for the reasons mentioned above, it was not a good investment for my client.  I will never help someone buy a mobile or manufactured home again. 

I’m interested in helping clients make good financial decisions over a long period of time.  Manufactured and mobile homes stack the odds too much against them.  It’s not that someone can’t profit from buying, improving, and selling manufactured homes, but it’s much more difficult than with stick homes.

Buyers:  If You Can’t Afford To Buy A Home In Your Area, What’s Are The Next Best Alternatives To Owning A Quality Stick Built Home?

1)  The first thing to do is to make sure you can’t own a quality home, because if you rent, you’re throwing that money away.  When you own a home with a mortgage, some of your monthly housing expense is buying equity in a home, equity that will likely appreciate in value.  The interest you are paying is often tax deductible.  So if you know you’ll likely be living in an area for at least the next 2 years, you should use the principles in this book to purchase the best home you can and improve it.  The first thing to do is to talk to a loan officer to make sure you cannot qualify.  Most states have first time homebuyer assistance programs that give grants to first time homebuyers.  Most areas have low down payment options.  If you have good work history and average credit, you can probably be approved for a loan. 

2)  Let’s say your credit is poor or you don’t have enough monthly income to qualify for the homes in your area, what do you do next?

a)   Read the rest of this book and see if it can’t give you some ideas how you might improve your circumstances so you can make your home an appreciating asset.

b)   Once you understand how to find good housing, discuss your knowledge and understanding with members of your family that successfully own a home.  Find their practical advice.

c)   See if anyone in your family would consider co-signing a loan and helping you with your mortgage payments or down payment.  Ideally, you should only buy a home you can afford on your own.  But practically, it’s better for a family member to supplement your monthly mortgage payment than it is to lose all of your monthly housing expense through rent. 

Here’s a practical example.  If you can only afford rent of $500/month and houses in your area start at $700/month, then if a family member can help pay the $200/month extra per month, your extended family is gaining $500/month in family assets for their $200/month investment.  If they don’t help you and you pay $500/month, you and your extended family are throwing away $500/month in assets that you’ll never recover again. 

If they help you with $200, the extended family is gaining nearly $500 more per month, a 150% immediate return on the $200 investment each month.   That return is on top of the additional appreciated value the home hopefully gains each year.

I can give you hundreds of examples of supposedly smart, college educated parents who spend years trying to increase their return in the stock market by 2 or 3 percent.  Some are successful, some are not.  In the meantime, they let their kids spend 10 to 15 years losing 100% of their housing expenses away in rent (their family also loses the positive appreciation they would be compounding each year owning a home).  The better solution would be for parents and children to buy a home together, and both profit from the common investment. 

I believe in people being self-supportive and independent.  But when that objective cannot be met, it is better for families to work together for common gain.

d)   If you have to rent, rent the least expensive place you can find.  Save your income as best as you can.  Find the best work you can.  Try to get to a place where you can own a home because owning a home is the only way to keep and profit from your monthly housing expense.

e)  Should you consider buying a cheap mobile home and renting the land?  In most cases the answer is no.  This is because a manufacture home will generally depreciate in value, the cost of selling it will be significant, and you’re often still stuck paying rent. 

Plus, when you get to a place where you can afford to buy a stick built home, you’re hands are tied because you’re stuck with selling your mobile home and paying rent on its land until you transfer ownership, end the lease agreement, or move the huge mobile home literally offsite.  This can either cause a great expense or a long delay.  In most cases, it’s more cost effective to rent an apartment than to rent a mobile or manufactured home.

Buyers:  Why Is Learning How To Make Smart Real Estate Decisions Always Important, But Particularly When You’re Buying Your First Home?

Most people buying their first home are just struggling to come up with enough money to buy any home.  They try to buy a home they like.  They try to buy a home that meets their needs.  But very few have the training, desire, or foresight to work to find a home that will be the more profitable than the average starter home in their area. 

Many people spend a great deal of their time, work and energy pursuing items of little value.  It’s not very exciting to learn about Real Estate until you understand how much more rewarding efforts in Real Estate can be compared to most other endeavors.  Real Estate can be pursued while pursuing most professions, vocations, and hobbies.  It does not disable other pursuits.  If you make good Real Estate decisions, they will make your professional, vocational, social, and hobby pursuits easier.  If you make poor Real Estate/housing decisions, you’ll disable your potential to pursue other things because you’ll have to spend more time and work unnecessarily paying for your housing.

So the first key mindset change is understanding how important it is to learn how to make good Real Estate decisions.

Buying a home is not like buying a car or buying a stock or bond.  It usually represents a much larger percentage of your total assets.  If at any point in your home buying career you make a poor purchase, it can set you back many years of financial progress.  This is especially true early on.  It can also limit your ability to make future profitable investments.  So you need to work hard and diligently to not make one major bad decision.  In some areas of life, it’s good to learn in small ways through trial and error.  But with large amounts of money, trial and error is not a luxury many can afford.

Your goal should not only be to stop throwing your money away on rent.  More importantly, you need to learn how to find a profitable home and negotiate the lowest price.  Those two skills are far more difficult than most homeowners understand.

How To Find A Profitable Home

If you prepare the same way everyone else prepares, don’t expect better results.

Choosing a good home is not like choosing your favorite music.  While the process of choosing a home always has important subjective considerations, the considerations that determine a home’s value and appreciation potential are primarily objective.

Most colleges don’t teach students how to select a home that will appreciate more than average for a particular area.  “Higher I.Q.” people don’t have any natural ability to choose a better home than average people.  College-educated people don’t generally know more about how to pick a high appreciating potential home.  It’s a shame that such a valuable skill is not taught somewhere in high school or college.

Learning how to select a valuable home is a specific, learnable skill that average people can learn.  An average person can have a great advantage over “college-educated” homebuyers who don’t know a thing about residential Real Estate.

Location, Location, Location?

It’s often been said the 3 most important characteristics of Real Estate are location, location, and location.  A person can believe that is true, but still not know anything.  The principle is instructive but not explanatory. 

The better location questions to answer are:

1)   What residential neighborhoods where I want to live have the most appreciation potential?

2)   What residential neighborhoods are most central to my most common commutes:  work, shopping, and social activities?

3)   What is the best residential neighborhood that will be in the most demand 10 years from now when land is running out and commute times have increased significantly?

4)   Where are the best lots I can afford within my favorite subdivisions?

5)   Of the neighborhoods that are best for me, which ones have a genuine scarcity of land?

Here are location characteristics that tend to devalue Real Property:

1)   Adjacent to a busy street  -  The home’s lot shares one side, front, side or back with a busy, noisy street.  If your home is near the entrance to a large subdivision, that is not as desirable as being further in the subdivision away from the main entrance street.

2)   Adjacent to a low traffic street that has regularly fast moving cars -  There are few cars, but they race by quickly and loudly.

3)   A corner lot -  These used to be valued more.  But nowadays, homeowners don’t like that most corner lots require twice the frontage maintenance.  They also don’t like the higher traffic and the smaller backyards.  Corner lots, with cars turning, are also sometimes not as safe for children to play around.  Cars make more noise stopping at, or turning around corners.  Headlights shine more often in windows of homes on corners.

4)   Home facing characteristics -  This is dependent on what climate you live in.  If you live in a hot climate, home’s facing East are less desirable.  If you live in a cold climate, home’s facing East are can be more desirable.  In a cold climate, home’s facing North with large South facing windows can be ideal.  The path of the sun is what effects this desirability.

5)   Lots on a “T” intersection -  Lots around a “T” intersection suffer similar to homes at 4-way stops in that they have car stopping and accelerating noises and the related pollution.  Lots immediately opposite the stop sign leading up into the “T” are potentially dangerous.   These lots also suffer at night because car headlights shine regularly right into the home’s front windows.  In all the areas I’ve lived, I’ve heard of incidents when drivers missed the stop sign and crashed into the front of the house.  I’m amazed when driving by these lots how many protective walls or barriers have be struck and compromised.

6)   “Your lot is only as good as the least pleasant lot next to you” -  This is an overstatement, but the principle should be considered.  You can have 2 great adjacent homes or lots next to you, but if one side of your home is next to a bad:  lot, irrigation drain, house, neighbor, street or intersection, that lot will negatively effect your value.  It is more difficult than most people initially understand to find a great lot surrounded by other great lots.  But if you can find one, your chances of reselling that home profitably rise dramatically.

The Importance Of Distance

In this book I stress many characteristics of location.   Most people understand that they don’t want to spend a lot of time commuting, but many don’t give enough weight to the consideration.

If you’re deciding between two homes, one with an average 15 minute one way commute and the other with a 30 minute commute, consider doing the following.  After the end of a full work day, drive home and don’t get out of your car.  Don’t go inside to eat.  Don’t go in and play with your kids.  Instead, stay in your garage, stay in your car, and listen to the radio for 30 extra minutes.  When the 30 minutes are up, before going inside, walk to the garbage can and throw a $10 bill in it, because that’s how much extra car costs are involved in traveling for 30 more minutes each day (gas, car wear and tear, increased distance to work insurance costs).  And if you make $20 or more an hour, throw another $10 bill in the garbage can for your half hour of missed work time.  Of course, I’m not literally asking you to do that, but I hope the illustration makes some sense.  Now multiply that $20 a day times 20 days a week and that is about $400. 

If the difference between two homes you are considering is less than $400 a month in mortgage payment and related housing expenses, then remember to evaluate the increased costs of distance. 

Further, if you live in a metropolitan area and your commute now is only 15 minutes, the odds are the commute will be 20 minutes in five years.  If it’s 30 minutes today, it will probably be 40 minutes in 5 years. 

Also compare the likely appreciation rates of the two comparative neighborhoods.  And if you are choosing between two homes that are in similar quality neighborhoods and are substantially equal, the home closer to a metropolitan area will likely appreciate faster.   The closer location means that the home is closer to more business centers, higher paying jobs, quality theatres, nice restaurants, airports, conference centers, hotels, and more people.  For the average homebuyer, the closer home will be closer to more friends and relatives.

If you want to live “away from it all”, that is great, but the odds that you will financially profit from your improvements are substantially against you.  Homes near jobs and population centers generally create far better return on investment.   If you love the great outdoors or love spending your free time “away from it all”, seriously consider spending long vacations in those locations.  Rent a nice cabin or home in that location a few times a year.   

How Does A Smart Buyer See What Most Buyers Don't See?

Smart Buyers have uncommon sight and know what to look for.  

A smart Buyer looks past the decor, the colors, and the characteristics that can be easily changed.  They see the infrastructure more than the surfaces.  They don't care whether the home is decorated or furnished well.  In fact, they know they'll more likely find value in a home that is not well furnished, landscaped, or decorated.

A smart Buyer is not so concerned if a home looks old, but they do care if the home has old infrastructure. 

Before studying the information below, it’s important to remember that all houses cannot be all things.  And most great houses still have some strong weaknesses.  On the one hand, you don’t want to set your standards so high that it keeps you from enjoying the financial benefits of improving a great home, but on the other hand, most people would be better off if they spent 2 to 4 times more time looking for and critiquing potential homes.

The following checklist is for single family residences in moderately populated areas.

Here's How To Train Yourself To See What Smart Buyers See:

The first rule in evaluating the value of a home is:

1)   Before you go look at a home, and you’re looking at a map or at a home print out/flyer, ask yourself:   Can this neighborhood ever be excellent?

Before going to the neighborhood to look at a potential house, ask yourself:

a)  Is the location within a pleasant driving time distance to the places I travel to regularly every week (work, restaurants, shopping, church, and social gatherings)?  How much is your time worth?  Do you want a quality of life where you are spending an hour and a half or more traveling in your car each day?

b)   Will the surface streets or freeways around that house become so busy in the next 15 years that it will make the commutes unpleasant for me and potential buyers?

c)    If you value spending regular time with friends and relatives, how close is the house to them?   If you choose not to live near them, how close are you to an airport?

d)    Would your regular driving patterns from this home necessarily require you to travel through dangerous parts of town, dangerous intersections, or dangerous roads?

e)    Drive around the immediate block.  Look at the nearby houses.  There should not be many cars in the driveways.  Are there nearby areas that have either negative land uses

f)    Roll down the windows at traffic times.  Could you sit in your front and back yards and enjoy the exterior environment?

g)   If there are busy streets, strong odors, loud noises, or unpleasant areas nearby, ask yourself:  Are there really no better nearby comparably-priced neighborhoods that meet as many of your other important interests?

If a home's area does not meet enough of the above interests, I strongly recommend you cross it off your list and don't consider it any further.

2)   When driving through the neighborhood, while sitting in the comfort of your car, look down the street and before you go inside a home, ask yourself:  Can this lot location ever be excellent?

a)   The houses should be spaced as far apart as possible.

b)   Neighbors' fences should be as good as possible.  (Your fence is not so important because you can change it, because your neighbors probably won't mind if you improve a common fence.)

c)   The lot shape should give you as much privacy as possible.  Generally square lots provide more privacy than similar square footage narrow rectangular or pie shaped lots.

d)   If the lot is on a corner, is it oversized?  Corner lots tend to have smaller backyards and they have twice the frontage landscaping to maintain because two sides of the house are on the street.  Corner lots may have greater visibility, inherently limiting privacy.  Corner lots tend to have more car noise and car lights because cars are turning on the adjacent streets.

e)   Is there a nearby speed bump?  While it may slow traffic, the very existence of a speed bump on your street implies that cars want to travel too fast on that street.  It also creates vibration and car noises from the bump.  It also can promote dangerous, unpredictable weaving driving patters if people try to avoid the speed bump.

f)   Is there a stop sign?  Stop signs have similar issues that speed bumps have.

g)   The immediately adjacent homes should be larger and better cared for than the home you are considering.

h)   The immediately adjacent homes should not looking down into the social area of your yard, including not having RVs looking over your fence.

Before going inside of a house, ask yourself:  Does the home and lot location meet the basic exterior requirements above as good as can be found in comparably-priced nearby areas?  If it does not, don't go inside.  Don't waste your time.  Finding a good home is tough enough.  You don't have time to evaluate homes in bad locations.

Before proceeding on to the third, more labor intensive and detailed, area of expertise in evaluating a home, please know that if you followed no other ideas in this entire book, and you only followed the recommendations of the first two sections of this checklist to make sure you were buying homes in the best areas and neighborhoods for your general area, then your financial returns will be excellent.  You will be doing better than 80% of people who buy homes in your area.  Even if you chose a poor floor plan and did not negotiate a good price, you’d still do okay if you stick to buying only homes on good lots in good neighborhoods.   But alas, I’m not interested in my clients only doing “good”.  I want them to love the environment their living in and I want them to financially profit from their purchases.  So here is the third section . . .

3)  If the home has a location close to where you travel regularly every week, if it's in a good "neighborhood", and if the immediately adjacent homes are of equal or better size and quality, walk into the house and focus on seeing past what is there. 

a)   Ignore the current furnishings.

b)   Ignore which direction the furniture is oriented.

c)    Ignore whether a room is a room or an office.

d)   When you look at a non-bearing wall, imagine a door, an open doorway, or removing the wall completely.

e)     In a small room, imagine removing a double-wide closet to make the room larger for another use.

f)     Can the garage be converted into a living space?  Can a separate garage be added on?

g)     Ignore the floor covering.

h)     Ignore the paint colors or wallpaper pattern on the walls.

i)      Ignore the bad odors (within reason).

j)      Ignore the ugly or non-existent landscaping.

You are not buying someone else’s “style” (and if you are, you’re probably paying too much).  You can redecorate and add style to a home.  By “style” I mean “the surfaces of things”.  You can change the facing, the façade of the home.  You can afford to reface a property.  You have the talent or you have the ability to coordinate talented people to do the work for you for a reasonable price. 

You are interested in the infrastructure, all the things that will be expensive or time-consuming to remedy. And you are interested in the negative characteristics that are unchangeable.

When considering the amount of remodeling work in a particular house, the question is not simply:  How much work is there to do?   Two houses can have the same number of man hours needed and one of the houses can be significantly lower cost to remodel.   The better questions to ask:  How much of the work can I do in my off hours?  How much of the work must I hire someone else to do?

Here are home remodeling projects and how long they take an average tradesperson to do.

Examples of quick things to do:

Replace carpet

Replace Vinyl

Paint walls

Replace a faucet

Replace a Window, creating a different window style

Examples of slower things to do:

Remove Wallpaper or Re-Cover it

Move a Wall

Put a Doorway in a Wall

Replace a Sink and Faucet

Reshape and Replace a Window

Adding square footage.

You can understand from reading this chapter how complex it is to discover a truly undervalued, yet great potential home.  So when your Realtor gives you a list of 30 homes that meet all the characteristics you've given him or her, (for example 3 BD 2Ba, 2 Car Garage, NE area of your city, 1200-1600 SF, and between $120,000 & $150,000), don't be frustrated when not one of them meets your high standards.  The Realtor's computer database can't filter and rate most of the characteristics talked about in this chapter.  If you truly want a great home, finding it is likely going to take many more days or weeks of work than you expect.  But a great home is worth the extra work.  The financial rewards alone make the extra work worthwhile. But the creature comforts of a great home make the extra work a pleasure.

Let's say you've efficiently used the ideas in this chapter and had the good fortune of finding a home or two that you might want to see inside.  That's when it's worth your time and the time of a good Real Estate advisor for them to get involved driving around with you and showing you into the select homes. 

Buyers:  General Considerations

Maybe 20% to 30% of Sellers who read this book currently own a profitable home with most of characteristics described in this book.  But anyone who reads this book can use these ideas so that their next home has more valuable characteristics.  If you already own a home, this book will be of great value to you, helping you enjoy the home more while getting more out of it when you sell it.  But this book is particularly valuable for people looking to buy their next home.

Put first things first.  Find the right home first.  Don’t limit the homes you are considering, simply because of their asking price.  You and your Realtor can usually negotiate a lower price. 

And if a lower price cannot be achieved, that can sometimes be to your advantage.  If a home is worth paying more for, then it will probably appreciate faster than the alternative homes you were considering.  And if there’s one area of life where it’s okay to spend “too much”, it is in buying homes of better quality, with better space, and in better locations.  You rarely hear stories about people who lost their shirts buying “too good” of a home in too good of a location. 

While you don’t want to pay more than a home is worth, homes of worth may be more than you’d like to pay.  Those two concepts are not contradictory.

Someday you will have to sell your home.  And while you may not particularly care now (when you’re buying the home) how much you will be able to sell it for, you will care then.

For the house I’m going to live in:  If I had to choose between a great price on a house in average area and location versus only a fair price on a very good house in a very good area and neighborhood, I would generally be more interested in the latter.   This doesn’t negate the need to try and negotiate the best price.

Buyers:  Choosing the Right Home

Factors to use to help you choose a good home:

1)  Would this house be good enough to live in the rest of my life?

I can hear objections, “What do you mean?  You don’t have to choose a house that you’re going to live in forever.”  My response is, “Yes, you are right.”  But the house characteristics you consider if you consider the question will lead you to choosing better housing.

For example:

If you had to live in it the rest of your life, would you choose a house with one long flight of stairs up to the second story?  Maybe that would be okay for you.  But as a Realtor, I can tell you many times when I walked into a house with someone, they saw one long straight stretch of stair and they turned right back around and left.  Don’t get me wrong, I’m not saying a long flight of stairs is a bad thing, but it is a characteristic that limits the number of potential Buyers who will consider your property.

Another example:

If you had to retire in this house, would you enjoy sitting in the back yard or front porch?  You may currently never use your front or back yard at all.  But other people do, and they like a nice, quiet, safe external environment.

I can also hear other reasonable objections, “That’s too high of a standard for my income and my area.  I can’t afford a house like that.”  That may be true too.  But asking the question still relatively helps you better evaluate the options that are available to you.  Which of the available houses would be best to live in if I had to live hear for the next 25 years?

2)  Could this house be transformed into a house that would speak well of the owner?

If you ask the question, it will lead you to ask good related questions such as:

Could the floor plan be made intelligent and usable for the average person?

Could the house be secured so it provided a safe environment?

Could the external paint, accents and facing be changed to easily improve the curb appeal?

Could the landscape be redefined to be more inviting?

Could the interior surfaces be changed easily to undo bad decorating decisions?

Most people see the characteristics of house, but few see what it could be.

3)  Cut to the chase:  If it’s a bad characteristic that you can’t live with and cannot be changed, then move on to the next house.

Look at the Remodeling Section of this book and remind yourself of the characteristics of a home that can be changed and those that can’t be changed.  If it can’t be changed, and it’s always going to deter the appreciation of your home, move on to the next home.

4)  Error on the side of choosing a home that is too big

If you want a 3 bedroom, also look at homes with 4 bedrooms.  If you want a 2 bedroom, also look at homes with 3 bedrooms.   Having one more room provides more storage, more privacy, or a room to rent if you need to – all very valuable things.  If an extra room helps you live in a home for 3 or 4 more years, that alone will save you thousands extra transaction costs.

Buyers:  Practical Steps to Finding the Diamond in the Rough and Finding the Unrecognized Value.

How is Finding the Right Home Different from Finding Other Types of Quality Property?

The simple answer is that real property is location dependent.  It cannot be moved.  It will always be prominently effected by it’s proximity to good and bad things.  The cutest house in the world with quality construction and materials would be of little value if it was not near a population center, jobs, or scenery.

So why is a keen understanding of this principle so important?  It’s important because this “location dependency” principle is counter to how we evaluate all other types of property.  But the better you understand the importance of regional location, city location, neighborhood location, and street location, the better off you will be.

Once you understand the values of different locations for your specific city, then you can:

Work Backwards 

Try finding the best neighborhoods you’d like to live in.  If you familiarize yourself with them, you’ll learn how to recognize value.

For all the wonders of the internet and databases, they cannot select “good” and “bad” neighborhoods or “good” or “bad” streets.  Nothing is better than personally walking a neighborhood to determine if it is good.

Make a list of the 5 neighborhoods you’d most like to live in.  As you have time, drive through them on the weekends.  Get your exercise walking around those neighborhoods.  Pull fliers and arrange to have your Realtor show you homes of interest.  After you’ve walked a neighborhood and found 2 or 3 homes you’d like to see, your Realtor can arrange all the appointments at one time.

When you look through these homes, you don’t want to be arm wrestling with a new listing agent at each home.  You probably don’t want to be defending against a new sales pitch at each house.  You want to see the home in private.  You want to candidly critique the home with your Realtor and family.  If you make positive comments, you don’t want the listing agent to understand your level of interest in the home.

A tech-savvy Realtor can send you only the activity on your favorite neighborhoods.  They can provide you with sales history of all homes sold in the neighborhood for the last couple years.

Buyers:  Challenging the Homebuying Clichés

This section discusses homebuying clichés and how to evaluate them.  Like most clichés, there is some truth in each statement, but in order to make expert financial Real Estate decisions you need to learn how much weight to give to each principle. 

Profitability is a result of knowing how to prioritize competing financial interests to find high appreciation assets.

1)  Should You Find The Lowest Priced Home In The Best Neighborhood?

“Find the lowest priced home in the best neighborhood” is an old cliché.  Finding the lowest priced home in a good neighborhood is a very difficult thing to do because many Buyers are looking for just that also.  And finding a low price home in a good neighborhood on a quiet, low traffic street location is always difficult. 

But even if you could buy the lowest priced home in a particular neighborhood, is that a home you should pursue?  The general answer is:  No.   This is because generally the lowest priced home in a particular neighborhood is not the lowest priced home per square foot in that neighborhood.  This is also because the lowest priced home in a particular neighborhood tends to be too small for the average Buyer.

Another problem with the “lowest priced home” in any given neighborhood is that there are more Buyers who are eligible to buy that home.  This is because the total price is lower for smaller homes than for larger homes.  This creates more demand, generally causing the price per square foot to be higher than the average price per square foot of the larger, average size homes in that neighborhood. 

Another factor that causes smaller square footage homes to be more expensive per square foot is that smaller homes still require most of the building costs of larger homes.  Two homes that both have 3 bedrooms, 2 bathrooms, 1 kitchen, 1 heater, 1 a/c, 1 lot, 1 set of zoning & building permits, etc., - those two homes cost about the same to build, even if one has 1200 square feet and the other has 1400 square feet.  So this pressures the price of the 1200 square foot home to be closer to the 1400 square foot home in the same neighborhood.

The good side of this cliché is that it tries to encourage Buyers to look for homes that have a value less than the average home price of a particular neighborhood.  Below average priced homes in a given neighborhood tend to enjoy a value appreciation rate equal to or better than the average appreciation rate for that neighborhood.

Also, the lowest priced homes tend to be undersized.  So if you add on to these homes, you have a greater chance of recouping your improvement dollars, because the neighborhood will support the value of the home as it increases in square footage.

The lowest priced house is sometimes the lowest priced home because it needs repair.  So you’ll need the ability to see past the repairs that can be changed for a reasonable amount of money.  If you pursue that type of home, you’ll need to have the time, willingness, and ability to do repairs, and know how much those type of repairs will cost before you can value that home.

Pursuing the lowest priced home in a neighborhood is a low priority.  There are many other stronger value-determining characteristics that should be pursued first.

The “lowest priced home in the best neighborhood” is often not the best value home in that neighborhood, and it is often not the home that has the most potential to be profitable.

More important than finding the lowest priced home in the best neighborhood, a better goal would be to:

Find the best value home that you and the average homeowner in your area can comfortably afford in the best neighborhood you’d like to live in.

2) Should You Buy The “Lowest Cost Per Square Foot” Home In A Particular Neighborhood?

I sometimes hear: “And it will be the lowest priced home on the block per square foot.”  While it’s always important to look for a good price per square foot, the term “price per square foot” is a very rough and imprecise means of measuring a home’s value.  The number is always relevant, but laymen who put too much reliance on it will make incorrect valuations.

Buying a home is not like buying commodities.  A person looking for a home is not buying “square feet”.  They are not buying 200 ounces of gold, or two tons of pork bellies.  While a home’s square foot will help to determine the home’s value, it is only a number, and often a misleading number.

It’s important to always remember when valuing a home that homebuyers are only looking for one home. 

They are not looking to buy 200 shares of IBM and 200 shares of GE.  They are not looking to buy 2 or 3 homes.  They are not looking to buy “any home between 1200 and 1400 square feet”.  Buying a home is about commitment to one location, one neighborhood, and one floor plan.  A person who is buying a home is kind of analogous to a person choosing one “significant other” to associate with.  The decision may not be forever, but it is very important and usually requires choosing one home.

Why is the “one home” principle important?  Homebuyers who are willing to pay top dollar are looking for one great home with the necessary combination of: 1) great location, 2) great neighborhood, and 3) great floor plan.  They are not buying “1200 square feet at the low, low price of $90 per square foot.”

“Price per square foot” is a variable that can only be judged relative to a thousand factors:  location, floor plan, neighborhood, CC&Rs, Homeowner’s Assoc., utility costs, taxes, neighbors, commute, view, pollution, traffic patterns, etc.  “Price per square foot” is always an important consideration, but it is not as important a consideration as:  1) quality of lot location, 2) quality of floor plan, 3) quality of styling and building materials, and 4) quality of neighborhood.

If you gave me two homes to choose from, and I could sell only one of them – If one home was two stories, 3 small bedrooms, a small kitchen and 1600 square feet, and the other was a single story with a large kitchen, 2 large bedrooms, and 1300 square feet - and both homes were the same price – I would choose to list the smaller home because it will likely sell sooner.  Understanding these nuances will save you many lost hours and lost dollars in your Real Estate decisions.

How Does Evaluating “Cost Per Square Foot” Change For Various Size Homes?

Understanding the term “cost per square foot” and how you should value that term as an investor is very important to making profitable Real Estate decisions.   Below are some general guidelines.  There are thousands of exceptions to the below guidelines, but the guidelines are good to consider when valuing different size homes.

 

Here are some general guidelines to help you determine a home’s “value per square foot”:

1)  If the home has less than 1000 total square feet, the average price per square foot tends to be slightly lower than the average price per square foot for other homes in that neighborhood.  This is primarily because homes with less than 1000 square feet are too small for the needs of the average homebuyer and their family, so there are fewer Buyers demanding those properties.  But the price is only slightly lower per square foot because there are more Buyers who are eligible to buy a home of this size.  And if these homes are on lots and in neighborhoods that allow the home to be made larger, that increases their worth.

2)  Homes between 1000 and 1400 square feet tend to have a higher than average price per square foot compared to the rest of the neighborhood.   This is because there are plenty of homebuyers who can both afford a home of this size and plenty of homebuyers for whom this size home will meet their basic needs.

3)  Homes between 1400 and 2000 square feet tend to have an average price per square foot compared to the rest of the neighborhood.   This is because this size home meets the size interest of most homebuyers.  Additionally, this size home is the most that most people can afford for their area.

4)  Homes between 2000 and 3000 square feet tend to have a slightly below average price per square foot compared to the rest of the neighborhood.  This is because fewer homebuyers are eligible to buy this size of a home, even though they might enjoy having more room.

5)  Homes over 3000 square feet tend to have a significantly lower than average price per square foot compared to the rest of the neighborhood.  This is because the average homebuyer cannot afford this size of a home with its upkeep costs and property taxes.   Also, the price can be lower because the cost to build is not proportionately higher.  In a home this size, there is still generally only one furnace, one a/c, one kitchen, one zoning, etc.

So if you ever have a Realtor tell you “the average price per square foot for this street is X dollars”, use the above mitigating factors to help determine what your price should be.  Look at the square footage of the “comparable” homes. 

There are many contributing factors that can make the above generalizations incorrect.  But the principles above are generally true and not widely understood by average Buyers.

As a Seller, you want your Realtor to use “price per square foot” to your advantage.  One of the best promotional characteristics a Realtor can put in your flier, online, and magazine advertising is “priced below average price per square foot of homes sold on that street”.   This sounds like such solid comparative information - even when it is not.

Conversely, as a Buyer, you want your Realtor to use the above rationales to explain why the neighborhood’s “average price per square foot” may be higher than you should pay.


 

3)  Should You Consider a Starter Home in a New Home Community?

I wish I could say, “Yes.”  I understand the lure and appeal.  Everything looks so new and there is so much hope - but there is also so much that is undefined.  As a general rule, the answer is:  No, not if you’re looking for uncommon value and appreciation potential.

When you negotiate with new home sellers, they are very savvy.  They know that if you don’t buy their low priced starter home, someone else will soon enough.  Your leverage is very weak.  They have onsite company Realtors who have very narrow discretion.

When you are in a “new” neighborhood, ask yourself, “When this neighborhood is 6 years old, how is it going to look?”  Go visit a neighborhood by this developer that is already 6 years old.  Are there a lot of homes for sale there?  Too many?  Are there lots of cars parked in the streets?  Are CC&Rs and yards kept up after the “newness” is gone?

I’ve always found better values in older, nicer neighborhoods.  Older, established neighborhoods will give a much better indication of whether CC&Rs are enforced.  You’ll be able to tell if the homeowner’s association is too lenient or too strict for your tastes.  Yes, the homes are several years old, but all homes will be several years old when you eventually sell them.  Older neighborhoods have the advantage of giving you a better indication of whether the neighborhood will continue to be top quality.

Starter home neighborhoods tend to be rundown after the first few years.  This is because starter home neighborhoods tend to be occupied by homeowners who are less experienced, and less concerned about keeping up and improving their homes.  This limits the appreciation potential of homes in starter neighborhoods.

You can find great homes and great values in a starter community – the odds are just against you.  Buying a new home in a starter community is kind of like buying a new stock the first day of its initial public offerin