But before you make what can literally be the investment of a lifetime, you should ask yourself these five questions:
1. What determines your home’s value?
Many homebuyers looking for an investment property are excited by the thought of a fixer-upper—when there’s plenty to do, you can imagine big returns when it’s time to sell. Remember, though, that not all the variables are in your control—and sometimes the issues that reduce home value take more than a remodel or a fresh coat of paint to resolve. Nearby railroad tracks, busy streets, or a rough neighborhood can make even the nicest home a tough sell—and give your renovations a lower rate of return.
2. Can you afford it on your present income?
Hopefully, this is the lesson that we’ve all learned from the 2008 mortgage crisis; you can’t count on endlessly-climbing home prices or constantly increasing income. Particularly for contract workers or the self-employed, this means taking a serious inventory of your income. Don’t buy a home that you could only afford if every month was a home-run; instead, look for a payment plan that you could handle on a below-average month. New lending restrictions should make this somewhat easier—banks are required to take a two-year income history from contract workers—but it’s still very possible to get in over your head.
3. Has the home inspector approved it?
Too many homebuyers skimp on this step, thinking to do it themselves or simply fix whatever might come up—but if you can afford to buy a house, you can afford to have it thoroughly inspected, and you’ll be glad you did. Some homeowners will include inspection in their closing costs, but assuming you’ll foot the bill gives you a lot more flexibility. Many problems that an inspector can uncover can cost tens of thousands of dollars to repair, without giving a corresponding bump in the home value.
4. Are you prepared to do some improvements and maintenance yourself?
A great deal of your home’s investment value will depend on how much work and know-how you’re able to put in to making your home more livable. This means renovations as well as maintenance—including repairs, regular cleaning, repainting, and lawn care. If you’re buying a home with a large yard (or a hilly, tough-to-mow lawn), make sure you’re up to the task—or that you can afford to hire regular professional lawn care. Also, take a realistic inventory of your home improvement skill. If you buy a fixer-upper, and you have to hire outside help to make the necessary renovations, you’re a lot less likely to see your money back in resale.
5. What’s your resale horizon?
Think carefully about how long you plan to live in your next home, and what that means for your resale prospects. If you’re only going to stay in town for a couple years, consider whether it even makes sense to buy a home. Buying and selling a home imposes considerable costs in time, money, and headache that renters don’t face. On the other hand, if you’re ready to take on the job, you’ll get to see a lot more of your money back. Also consider the burden that a fluctuating housing market might impose: if you find you need to move out quickly in pursuit of a job opportunity, you may have to sell your home for less than you paid.
Mike Freiberg is a staff writer for HomeDaddys, a resource for stay-at-home dads, work-at-home dads, and everything in between. He’s a handyman, an amateur astronomer, and a tech junkie, who loves being home with his two kids. He lives in Austin.