Buying a House vs. a Home: Being an Investor vs. a Personal Home Buyer

A lot of people have asked me recently how to start their own real estate business.  Over the last few entries I have tried to give a good overview of how I got into the business.  Today I want to share some key differences between real estate investing and personal home buying.  It is very important that anyone approaching one or the other understand how they are different.  

Personal home buying represents turning a house into a home.  In this situation you are looking through a very personal lens.  If you like finished basements or large kitchens, you need to look for a house that either can be completely redone or that comes close to meeting your needs.  You go in expecting to put in several years (or more) worth of work to get things just the way you like it.  Have you ever wondered why some houses have more bathrooms than bedrooms or why the walls are pink under that wallpaper?  The answer is simple; everyone who moves into a house makes it a home.

The goal of real estate investment buying is almost the opposite.  In this situation you are taking a home and turning it into a blank canvas for future renters or buyers.  Those flower window dressings you like so much, might not appeal to perspective tenants.  Additionally, while you might be able to live with that hole in the door, future buyers might see that as a sign of disrepair.  Most importantly, the properties you look for will be diamonds in the rough.  Properties with broken doors and windows, but fairly new appliances, a good foundation, and an intact furnace make excellent investments.

Good investors have great vision.  They know how to separate buying a home from buying a house.  These investors know how to change little things to make a big impact.  New door knobs, a new address sign, freshly cut grass, and a few shrubs in the front can turn a house completely around.

New investors need to keep this in mind as they approach an opportunity.  The quickest way to kill a return is with expensive upgrades that you fall in love with.  A keen understanding of personal home buyers is important.  Home buyers expect to purchase or rent a house and make changes to fit their lifestyle (not yours).  Save money by providing them a blank canvas and let them create the vision.

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11 Responses to Buying a House vs. a Home: Being an Investor vs. a Personal Home Buyer

  1. Mary says:

    Great blog — followed links from Inman to Bloodhound to you. I really appreciated the post about buying technique. Are you still in Detroit? Does your wife and partner have a name?

    I’m in Detroit too, about to make my first investment after a year of reading, reading, reading, and attending REIA of Oakland meetings. An excellent resource for free RE education is the Detroit Public Library. The Main Library Business Department (the big room with the Pewabic tile fireplace) has a real estate section that is large and up-to-date with lots of new books. Just don’t steal the books, or write in them, please! Sample, then copy pages to use as worksheets or, if it’s a keeper (it may have “millionaire” in the title but it also talks about NOI), go to Borders to buy. If you leave the library books so others can learn, there will be more investors ready to buy when you want to sell.

    Great blog, Michael; I look forward to learning a lot from you.

  2. Mark Ballard says:

    That is good advice. I use “blank canvas” often also.

  3. Bang on Michael!

    I’ve bought and sold a few investment houses and homes in the past 4 years- and I must say how critical it is to seperate investments from your home. Having moved 11 times in 4 years, I should have read this on house #3.

    Shane’s New Plan- Find a Home not anther investment potential that I could live in for 8 months durring reno’s.

    This is not to say that with my next house I’ll over pay because I love it, but if the price is right and it has a mountain veiw with a walkout- I’m SOLD.

    Truth betold, as an investor it is difficult to take off the blinders when looking for a home (always wondering, what if we could just find 1 motivated seller willing to do a VTB with an assumable).

    Look forward to learning more from you on Technorati or any other blogs you belong to!

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  5. Frustrated Buyer says:

    Great Blog, thanks for the info. We are looking for a home, but
    we want a “fixer-upper”. We enjoy working on the house and want
    to give it our own personal touch. We don’t want to live with
    decisions others have made, and from our experience, it appears
    home in a more original state work better for use.

    Unfortunately, this pits us against investors rather than other home buyers.
    And this is the problem that I need help with. Currently, we’ve
    put in a offers for a house for three weeks. The agent for the
    house says “we have a cash offer”. We believe we have a higher
    bid, we are willing to go up. But the agent won’t pass our bid to
    his client. The price has dropped below our initial offer.
    We believe this agent is hiding bids from his client to give
    a good deal to his investor friends. By the way, the owner of
    the house is a bank, it’s a foreclosure, the agent has not marketted
    it, hasn’t even posted photos on the MLS.

    Is there anything I can do?

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  7. I have seen many investors fall into the trap of letting their emotions get the best of them. Buying a house as an investment should be completely unemotional and viewed strictly as a business investment.

  8. Neil Agent says:

    Exactly, if your buying real estate with the intent to rent you need to think of it as running a business and not attach your personal feelings to it in any way. This is the first and most important factor when building your real estate investment portfolio.

  9. Worldwide client base in the mobile communications space.Buying a house as an investment should be completely unemotional and viewed strictly as a business investment.This is the first and most important factor when building your real estate investment portfolio.

  10. Rick Delgado says:

    This is a very informative blog and while I was reading it I realized why I’m finding it so difficult to sell my house. There have been a few interested buyers but none of them have been willing to pay the price that this house easily commands in the market. I now see that since I have been living in this house for so long, some of its oddities too look acceptable and even good to me. However, when a person sees this house from a buyer’s prospective, he surely would be turned off by them and decide against buying it. This blog has opened my eyes towards the things that I need to change in my house before I show it to the prospective buyers. The information presented here is not only useful for those who want to buy a house for personal use or investment purposes but also for those who want to sell their house.

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