How to Invest in Real Estate: Forever Home vs Investment Home
Posted by Eric Skates on
Buying a house is, by far, the most important financial decision most people make in a lifetime. Hundreds of thousands of dollars and decades of our lives are dedicated to purchasing the perfect house for our lives and families. And the investment is absolutely worth it. The memories of your children growing up, the shared holidays, and the wonderful times had in a house are well worth a portion of your income for the next 30 years.
But living a good life isn't the only reason to invest in real estate. People also buy houses in order to make money either renting them or re-selling them for a profit. This is a much more active way to work with houses and can often involve selling a house before the mortgage is even half paid off. Both reasons to buy a house can be highly rewarding, but let's face it: there are some very different criteria between buying your forever family home and buying an investment house.
So if you're house-hunting right now, it's important to know which kind of house you're really looking for. And the answer might surprise you.
Buying Your Forever Home
The 'Forever Home' is a term in the real estate industry meaning a house buyers will want to live in for the rest of their lives. Every person has an idea of their dream home, something they've been imagining raising a family or basing their career from for years. And eventually, most people plan to buy that final house and settle down to live in that perfect place for the rest of your life.
You might think that the first home you save up for and buy with a 30-year mortgage commitment will be your forever home. Because why would you settle for anything less?
The Starter Home Tendency
But here's a fun fact: Very few people consider the first home they buy to be their 'forever home'. This is because young professionals and families can seldom afford the full-sized family estate or high-rise condo they've been dreaming of. After a few months of saving and keeping an eye on the markets, you get an idea about the size and type of house is available in your city and price range.
And most first-time home buyers decide on a strategy to start small. They buy a modest two-bedroom, a townhouse with a small yard, or an older home that isn't perfect, but it's got everything they need to start a family and continue building their careers. And it's better than continuing to see rent disappear without equity every month.
When buying a starter home, you know that your career will improve, you'll make and save more money. And eventually, you will buy that home of your dreams. Your Forever Home.
Investment Home Mentality
So when that day comes, the question is: What will you do with your starter home? This is the point in life when homeowners first realize they can become landlords or start 'flipping' houses to sell for profit. Because chances are that the value of your starter home has appreciated over time. And any improvements you made as residents like built-in shelves and new appliances? They also upped your final sale price.
With this in mind, it's actually a great idea to think about your starter home as an investment property instead. Rather than feeling down that it's not your dream house, instead consider any home purchased as a live-in investment. The time you spend there can be used making sure the house sells for more than you bought it. And the choices you make about buying can be based on the idea of a shorter stay than 'forever'.
In this situation, you can do three things when your finances and the market make your dream house a possibility:
- You can sell the house and use the profits to invest in your true dream house
- You can keep the house and make continuous profits by becoming a landlord
- You can take your time fixing up the house for a top-dollar sale later.
Your Forever Home
Finally, there's shopping for your forever home. Investment real estate is a great way to make money and build up equity as your income improves. But we know that, eventually, you will want to settle in that beautiful home that you plan to be yours forever. Shopping for a forever home is different than looking for a cozy starter house or an investment with high potential.
To find your starter home, you need the finances to invest in what you really want and the market to offer the right house. Remember, you can't actually imagine your forever home into existence. If the right house isn't available in the area you want to live, it' just isn't there. And if the right house does become available, you want to be able to make a competitive bid as soon as the inspector gives their OK.
When looking for your forever home, make sure the bones are exactly what you want. You need the right amount of space, floor plan, and building style. But also remember that it will be your house, and you can make surface-level changes easily. Don't sweat the color scheme, you can change that with paint and stain. Don't even worry if the cabinetry is awful. You can commission a carpenter to make it exactly what you want. And because it's your forever home, any renovations will be with the investment if they make you happy.
We are happy to help guide you in your journey to homeownership here at Equity Prime Mortgage, click here to find a Mortgage Loan Officer in your area, and if you're ready to get pre-qualified to look for a home with a better idea of what you can afford, click here.