Investing In Real Estate Essay

1334 words - 6 pages

.Given the choice between two investment properties—both 3-bedroom, 2-bathroom, 1,700-square-foot single family residences listed at $125,500, one a turnkey in Stockton, California, and the other a fixer-upper in Chapel Hill, North Carolina—and the singular goal of turning the maximum profit on my investment, I would choose to purchase the Chapel Hill home. Because I believe that the listing price of that property is lower than its true value, and because I expect a growing real estate market to increase the value of the home by 10 percent over the next two years, I think that with an additional investment of $50,000 in renovations and a two-year buy-and-hold rental strategy, I could flip the Chapel Hill home for more than $180,000 in profit.
As is, the Chapel Hill home is worth significantly more than $125,500. In October of 2013 (the most recent month for which data is available), a middle-of-the-range 3-bedroom home on the market in Chapel Hill was listed for $154 per square foot, and sold for $150 per square foot, according to real estate market data aggregated and reported by Zillow. For a 1,700-square-foot home such as the one on offer here, those numbers equate to a current median listing price of $261,800 and a current median sale price of $255,000. Other estimates of 3-bedroom prices-per-square-foot in Chapel Hill, such as those provided by Trulia, are only higher. Even granting a generous 30 percent discount on Zillow’s median list price for this property’s needed cosmetic updates, $125,500 is still a full $53,000 less than the property’s true market value. The data suggests that if I were to simply buy the home and the following day relist it at its true value price, I could expect to sell the home—without waiting for market changes or making any upgrades to the property—and realize a remarkable 40 percent return on my investment.
Key economic indicators give me every reason to expect that over the next two years the Chapel Hill home will experience an increase in value of 10 percent or more. Not only are the Chapel Hill public education system and city infrastructure top-notch, as mentioned in the home’s real estate listing, but the local economy is very strong. According to the United States Bureau of Labor Statistics, the annual average private-sector hourly wage in the Chapel Hill metro area has steadily increased from $20.28 in 2007 to $26.84 in 2013 (through October)—a growth rate of 32 percent. The city of Chapel Hill is also home to the main campus of the University of North Carolina, which has experienced record growth in enrollment over the past five years and is consistently recognized as one of the nation’s top five public universities, attracting faculty and staff from all over the world. Not only will the demand for housing increase—the North Carolina Office of Budget and Management projects a population growth rate in the Chapel Hill metro area of more than 17 percent between 2010 and 2020—but the budgets for...

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