We have all heard the timeworn phrase, “It takes money to make money,” and even though it isn’t necessarily true in real estate — so long as you have the right partners — spending a little money certainly doesn’t hurt, especially if you want to protect your residential real estate investment.
Here are a couple of the key ways we protect our investments are through inspections and by purchasing home warranties. On the purchase of a property, you may spend a couple hundred dollars extra on a transaction by buying a home warranty.
But if you go to sell the property and they do an inspection and the roof is damaged, it’s going to cost you between $8,000 and $10,000. If you have a home warranty in place, all you have to do is report the damage, pay the premium, and get that new roof in place.
Knowing where to protect yourself in order to avoid unexpected costs is incredibly important. We have seen a lot of people who neglected to take the proper precautions get hurt.
For example, recently we purchased a house. We had to react really fast, because it was priced incredibly low. It was one of those instances where we took a chance on buying it, because we were buying it at around 40 cents on the dollar.
We knew after we bought it that the property had major roof damage. Luckily, we bought a home warranty. Although we bought the house that cheap, we were able to get the home warranty and save close to $13,000. By protecting your invest when you purchase properties you’re able to save a lot of money.
Another investment you may have to make in your property is by bringing it up to FHA loan standards. If you’ve rehabbed a house and you’re selling to retail buyers, you may have to come out of pocket for things like appliances. In cases like these, it’s worth spending a little bit extra so that everything can go through smoothly.
You may also want to have your own appraisal done. There have been many times that we have seen appraisers go out to a property and it isn’t ready. If you spend an extra couple hundred dollars just to make sure the appraisal matches the selling price and that the house is ready to go, in the long run you will save time and money.
And that’s what it comes down to: Time is money. You want to make sure that you complete the right processes so that you’re able to exit your investment and get your money back in your pocket.
There’s something called the internal rate of return and we watch that carefully as we are very concerned about our investors. We want to make sure that we turn over their money over and over throughout a year or throughout that cycle.
One of the ways we’re able to do that is by making sure that all of these things are taking place and making sure we’re not wasting time. We’re not going to waste time and we’re not going to lose money or spend additional money that we could have saved by having these insurances in place.
That’s the main thing: Protect your time and protect your money. If you protect both, then you will be taking care of your investors or assets as you continue to build your business.