Should I buy the biggest house on the block?

10 Replies

Investors...not sure how to advise my client. Looking at a home listed for 650kish 2500 sqft and a 4/2.5....Huge lot 10k sqft. Comps selling for 680-750k with less beds (3) Sqft 1300-1800 with lot size of 8kish (Hope I provided enough info).

It is by the far the biggest house. It is liveable but in need of major upgrading.

I guess my question is.....Is buying basically the biggest house on the block a good thing because obviously we want to rehab and list for much higher than what the neighborhood is selling for?

Thank you everyone

It sounds like a risky rehab. In my market, I have seen too many homes above $600k have been listed on the market for longer periods of time, sometimes years, however the average price is around $300k here. There is more of a market and demand for the regular sized, more affordable homes, for you that would be the homes priced for $680-$750k.

Depends on location.  In some areas, there is a price ceiling regardless of size.  Comps and appraisals can be problematic as well.  It's typically better to buy the smallest house on the block.

Depends on the location.  Four bed, 2.5 baths will attract a family.  I'd be more worried if it was the best house on the block, but from the sounds of it it needs some work.  Get a better idea of reno costs and run the numbers to see if it makes sense as a rental.  At $600K+, the rent is going to have to be high to cover your expenses.

The biggest house in the neighborhood is neither good nor bad,  It is the numbers. I have concerns about what you outlined. I would proceed with caution  The price per square foot drops as the houses get larger than the average size house.  The square foot value for a smaller house is greater than a larger house in the same neighborhood. 

The transaction fees are going to be hard to overcome. Doc stamps, title insurance.  It varies by location.  At 1% which is incredibly low, you are in at $6,500, bringing you down to $93,500 out of your 100k spread.  Assuming you only paid 6% for realtor fees and the buyer paid the rest, you are in for $45,000 now down to 48,500 reno budget.  
  
If you need to take hard money, you are in for at least 1.5% funding and 1% a month.  Three month hold 4.5% or 33,750

Reno Budget $14,750.
At this price point you can not use builder grade and would have a higher cost for materials.



Originally posted by @Lawrence Michael :

Investors...not sure how to advise my client. Looking at a home listed for 650kish 2500 sqft and a 4/2.5....Huge lot 10k sqft. Comps selling for 680-750k with less beds (3) Sqft 1300-1800 with lot size of 8kish (Hope I provided enough info).

It is by the far the biggest house. It is liveable but in need of major upgrading.

I guess my question is.....Is buying basically the biggest house on the block a good thing because obviously we want to rehab and list for much higher than what the neighborhood is selling for?

Thank you everyone

 

When you buy the most expensive home on the block, it often means you're getting the nicest home on the block. ... If the house you buy is in top shape, you won't have to spend a lot of money on home improvements once you're living there.

@Lawrence Michael

I did exactly this back in 2014. I rented it out for a few years and made numerous improvements. Sold it for $5,000 LESS than I bought it for in 2019.

People that can afford the nicest house in a decent neighborhood will probably rather live in a much nicer neighborhood with an average house (for that neighborhood).

For investment and return, 99% of time is to buy the smallest house in the neighborhood. Your rent proportion to larger homes are better (larger homes usually don't double the rent if square footage is double). Other people's remodel/home appreciation will help your home value if you are smallest vs. you are the one who set the market if you are largest home in the neighborhood.

For homes over $2.5M+ would likely be the other 1%, buy the largest land in the neighborhood.   You can always rebuild whatever is on the land.  Cost of rebuild/rehab relative to overall purchase price is small.   People who can afford $2.5M+ home can also afford the one at $3.5M, so next buyers in the neighborhood will likely be looking for the best.   This scenario likely won't apply to most investors.   

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