Myles of Investments

Read about my successes and failures. Learn from my experiences and gain insight without losing any cash!!!

Lesson: Catching a Falling Knife
Lesson: Currency Exchange
Lesson: Mutual Fund
Lesson: Paid to Wait
Lesson: Pricing in a Downturn

This is where you’ll find find my Blog. I will comment on the latest news relating to investing, real estate, and the financial markets.

The Best House is the Worst One

The title’s simplicity contradicts its clarity as a truism in the world of real estate investing: that the best house is the worst one. This can be taken either in the positive or negative sense, however the end result is equivalent.

Take the positive: the most effective strategy for real estate purchasing is choosing the worst house on the block, as opposed to the best house. Why? You are in actuality getting the benefit of everyone else’s hard work to compound yours as you upgrade the house. How does this work? As the worst house on the block, there is often a very steep discount for that house, relative to it’s surroundings. Since it is hard for people to justify a high price for the worst house, I mean, why would you pay top dollar, when a beautifully completed house require little work and offers maximum enjoyment of life, compared to the work associated with a fixer-upper.

This being said, the best house on the street (or the nicest) is actually the worst purchase from an investment point of view, as the premium price of the upgrades is built into the price of the property and often marked-up substantially. And, even if the seller slightly undervalues it, the result would likely be multiple offers, and could actually push the price past its market value. Because the entire house is completed it will show significantly better than the competition and as such command a higher price.

Think about this example; I had a coworker who recently bought his first house. He and his wife commented that they paid a little more for their house, than the competition because it seemed cleaner and better. For instance, the carpet was in much better shape and so forth. Later as they were touring me around the house, they showed me a sample of hardwood flooring… I asked if they were doing an addition, and they replied that they were ripping out the carpet to put in hardwood! They didn’t realize hat they had paid more for clean carpet that they were ripping out right away. Why not buy the ugliest, most stained and worn carpet in the neighborhood, because you are going to get rid of it anyway, and why would you want to pay extra for something that you want to change anyway!

You will gain a different view of value in the real estate market, if you can see that the best house is the worst one. This has enabled me to earn significantly higher profits on my real estate investments. But remember, it takes a huge commitment. You’ll often find my wife and I working late on weeknights, and spending much of our weekends trying to find the diamond in our rough house. It is not easy to turn the worst house on the street into the best one! But then again, it’s not easy to create wealth!