Sweat equity is one of the best ways to invest in real estate. A buyer can find a property in need of remodeling or repair, fix it up, think about remodeling for resale and eventually sell the house for a profit. That model is the ideal, but smart investors know it’s not always what happens in the real world, where improvement costs can spiral up and eat potential profits.
Before beginning a remodeling project with an eye to potential resale, investors are wise to do some careful calculations:
1 First, have a professional appraisal performed
Small home improvements often cost more than anticipated due to changes in building codes. A qualified appraiser can help identify potential money pits that will waste all of your time and money.
2 Next, calculate the total cost of ownership
Owning a home entails more than the cost of the mortgage. Include property taxes, insurance, tools and supplies, pest control, yard maintenance, security, travel to and from the home and other miscellaneous expenses.
3 Finally, don’t forget the cost of selling
Typical real estate sales require 7 percent in real estate fees plus another 2 to 3 percent in other fees related to selling your home. A good rule of thumb is to estimate approximately 10 percent of the total selling price toward closing costs and commissions when selling a house.