When looking for a home to buy, it's understandable why the average buyer would want something turn-key and move-in ready. After all, who doesn't love the idea of not having to put any effort into fixing up a home before moving into it?
Then again, does buying a home that's already decked out mean there's no wiggle room to add more value?
It's a conundrum that faces many buyers, as they weigh their options between buying the best or worst house on the block.
In one scenario, they may have plenty of opportunities to add value to the home with a little elbow grease. On the other hand, they'll have absolutely no work to do and can instead enjoy their new home the second they move in.
So, the question remains: should you buy the best or worst home in the neighbourhood?
Why Buying The Worst House On The Block Might Be A Good Option
The premise behind buying the worst house in the neighbourhood is to allow enough room for value to be added. If you buy the best house on the block, it's already maxed out in value. There's no more room to add more.
Instead, buying the worst home that needs work allows you the chance to renovate and update the place to bring it up to par. Keep in mind, the only time this really works is if you ensure the neighbourhood is already desirable and highly valued, and that other homes on the street are commanding prices far higher than what you paid for the home in question.
The idea is to be able to add more value to the home than what you'd end up spending in renovation costs. The ROI should be high and should make sense for the work you put into improving the home.
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For instance, a success story would be buying a home for $500,000, spending $100,000 to fix it up, then being able to sell it at some point in the near future for $700,000. That would translate into a profit of $100,000 (minus selling costs).
If you can find an area that's desirable and a property that you can fix up without spending more money than what you'd recoup, you might have a winner.
Why Buying A Good House In A Great Area Might Be A Better Option
A classic and well-known real estate adage, “Buy the worst house on the best block," may ring true in some circumstances. But is it written in stone? More specifically, does this "rule" even apply anymore?
For many, yes it does. But for others, it's an outdated standard that buyers can safely ignore.
More importantly, it should be more about having a keen eye for adjacent next up-and-coming hot spots, rather than focusing solely on the property itself.
This is especially true if the area in question is a little too pricey for the buyers budget to handle. Instead, buyers might be better off investing in the next-best neighbourhood nearby the area in question for something a little more affordable. Eventually, the value will spread out over time.
If this tactic is taken, just be sure to avoid overpaying for a home that won't have a high resale value when the time comes. Instead, purchase a place that is likely to increase in value over time.
Of course, location is always number one when it comes to buying real estate and ensuring appreciation in value over time. But it's also important to consider the actual streets within a specific area, as they're not all created equal.
For instance, it might be better to buy a home that needs a major overhaul on a quiet cul de sac than a move-in ready home backing onto an industrial field or facing a busy street. It's all relative. Not only should the property be considered, but its exact lot and neighbourhood should be taken into account as well.
Buying a home in decent condition but in an undesirable location can turn into a real issue and can end up becoming a financial burden over the long haul.
The avenue you take will depend on your needs, desires, and the location of the home you plan to buy. While in some cases it might make sense to snag a home in a great area that needs some TLC, in other cases buying the right home in the right area at the right time might be your better option.