It's little surprise that John Beal considers real estate the best investment a person can make.
During the past five years, the Leesburg resident said, he has bought about 10 homes in fixer-upper condition -- they needed new hardwood floors, fresh paint jobs, modern carpets, new windows -- spruced them up and then sold each one for a sizable profit.
Take an example from earlier this year. Beal said he bought a townhouse in Alexandria from owners who were in danger of falling into foreclosure. This meant that Beal got the home at what he considered a discount price. It also meant that the house wasn't in ideal condition and that he had work to do before he could put it on the market.
He refinished the hardwood floors, put in a new kitchen, added paint throughout the interior, put down new carpet and cleaned up the landscaping. The renovations took a little more than two months. He sold the home this spring, after a month and a half on the market, for a six-figure profit after taking renovation costs and other expenses into account.
"You can do three things with a fixer-upper: You can buy it to live in it. You can fix it and flip it. Or you can fix it and rent it out. I've done all three, and all three have worked for me," Beal said.
Last year, 15 percent of mortgages written were for non-owner-occupied property, according to the Federal Reserve. That's a big jump from 1990 through 1995, when investors accounted for about 5 percent of loans.
The reasons are obvious. The stock market continues to be volatile, scaring off some potential investors. Meanwhile, housing prices have risen steadily across the country and in the Washington region. For example, the median price of a single-family house in the District was $485,000 in August, according to statistics from the Greater Capital Area Association of Realtors. In August 2004, the median price was $375,000.
Investors such as Beal, though, are after something different: They are searching for bargains, those fixer-uppers that need some love and can be bought for thousands of dollars less than the cost of an average home in the same neighborhood. They hope to renovate the houses and sell them for significant profits.
It's a strategy that has worked well for Beal, who is acting president of the Capital Area Real Estate Investment Association. Beal, though, has an advantage: He's a real estate agent who knows how to price homes properly, knows how to market them and knows how complicated real estate deals can become.
Too many people looking for bargains don't understand any of that, Beal said. They make common mistakes that can torpedo their chances of making solid profits.
"A lot of people don't understand what it takes to actually do an entire deal," Beal said. "I've seen people get involved with renovation projects that cost more than they initially thought. A lot try to do their own general contracting to decrease the cost. Then they find they can't put in the new granite countertops because the cabinet guys haven't installed the cabinets yet. I've seen people underestimate what it takes to sell a property. They underestimate the holding costs, the mortgage, insurance, selling expenses, taxes. They think, 'If I sell it for $500,000 and buy it for $350,000, I'll make $150,000.' It's not like that."
Real estate pros have plenty of advice for new investors. Their tips can make finding that perfect fixer-upper, and avoiding the costly mistakes that burn other new investors, a bit easier.
