Two Old Houses: Which One Do You Buy?

If you are buying a first house, and want one day to make money on it, you are going to have to face some choices. Lots of people are buying older homes these days. Well chosen, you can end up with a very well constructed house, at half the price of a new one, or less. But old homes have a whole host of problems that can crop up. If you’re a first time buyer/investor, it can be easy to get swept up in the emotion of a first or second purchase. But this is not the way a successful investor thinks. If you want to make real money in the long term, you’ve got to think like a computer, weighing pros and cons of each purchase. It’s not as hard as it sounds. With experience and a Home Inspection All Star, seeing the real value in a prospective house is easy. But in the early stages, you’ve got to make sure you do your homework. Here are two houses that you might come across one day. Which one do you buy?

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House #1: This house is about 100 years old. It has been renovated several times over the years and has had several owners. It is small and compact. It is in an up-and-coming historic neighborhood that economically collapsed a decade ago, but is on the rebound. As such, the price is very low. It costs $80,000 and needs about $25,000 of work. Because this is your first house, you’ll need to perform some of the repairs yourself to save on costs. You plan to live here for awhile, then move somewhere else and rent this out.

Pros and Cons. On the plus side, this house is very cheap. On the negative side, being so old and with such a varied history of work done inside, you can expect some surprises and hidden costs behind those walls. But still, being so small and cheap, it’s unlikely that you’ll find a true catastrophe. And once you’ve dealt with the problems, they stay fixed. A small house is great because it’s imminently manageable. Plus with the up and coming neighborhood, you might be able to sell or rent for a lot one day. But that’s “one day”. If you were to rent it out now, you wouldn’t collect much in profit at all. This is a great house for someone who has time to wait, but maybe not for an investor who needs cash flow now.

House #2: This house is also old. But the renovations that were performed by the last owner were done at a very high standard. As such, the price tag is more than double that of the little house above. But, it’s move in ready. You need to stay in the house for not more than a year. Then you’ll sell it or rent it out (probably rent), and go somewhere else.

Pros and Cons. This is a great choice for someone who wants to immediately rent the house out. Because it’s a finished product, it’s unlikely that you could flip it for any kind of profit. But by renting it out, you’ll essentially have someone paying you to own a house, perhaps with a couple hundred dollars in profit every month. This is a great way to amass cash flow and wealth, the lifeblood of the real estate investor. However, this is not a good way to earn income. You may own the house, but if you’re new to the real estate investment game, you’ll have wealth but not cash. What are you going to live on?

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