Updating your Home vs Updating your Investment Home
We bought our home in July of 2012 and when we bought our Investment Home learned very quickly that many of the decisions made were going to be different than if we owned a Home. Sound a little confusing, here are a couple definitions to help:
Home-This is the house that you buy where you see your kids playing in the back yard, adding your man cave to the basement, and imagining what your grand piano is going to look like in the family room. Every decision you make is for the sole purpose of your happiness and hopefully your budget.
Investment Home-This is the house that you buy based on if the neighborhood is up and coming, rental income, and the amount of work needed versus wanted to make the investment house sparkle. Every decision you make should be for the return on your investment.
We were faced with difficult decisions and expensive ones at that. Initially we had a $50,000 budget to renovate (FHA 203K Loan, which includes the renovation loan in your mortgage), which is a lot of money, but when the home is a foreclosure built in 1912 with 2 floors, a garage, a semi finished basement, and an outside area, you find out that many of the build your dream house attitude become a Home vs Investment Home decision.
In our decision to buy a multi-unit property in Chicago, we were faced with an immediate Investment Home decision. What floor do we want to live on? When you are buying a Home, this decision would never come up, because you can live on whatever floor you want, if you want to setup your bedroom on the first floor next to the TV room because you watch ESPN non-stop then go right ahead, all of the floors are yours.
When buying an Investment Home, we had to ask ourselves multiple questions, like:
- What floor is nicer and needs less work?
- Would we want the nicer floor or fix up the other floor to our specifications?
- Top floor or the bottom floor?
- 3 bedrooms or 2 bedrooms?
- Central Air or Radiator Heating?
These were some of the questions we faced early on, what decisions would you have made? Don’t read on till you make your decision.
In an Investment Home all of our decisions were made with an investment state of mind. We decided to go with the 2nd floor even though we were told this is not traditional of most owner occupied homes, because it made more financial sense. We did so because we are young and don’t mind going up a few stairs, this allowed us to have 2 bedrooms instead of 3. Our unit required a little more fixing up and possible future renovations, but we can do that at any time. If we would have chosen the first floor unit the only time updates or fixes can really be made is during vacancy, something that investors certainly want to avoid. The decision to live in the unit with 2 bedrooms was also made because we would make more rental income from a 3 bedroom than a 2 bedroom and more rent means a faster pace to financial independence.
The decisions you make with an Investment Home can be the exact same as your Home in many situations. For example our boiler went out last winter and a replacement was needed as soon as possible. Whether this would have been for our Investment Home or Home, the boiler we bought would not have changed, the only factor that had a major effect on our decision was the quickness and time allowed for the replacement of the heating system. If for example the boiler would have been for our Home instead of Investment Home we might have dressed a little warmer in the house and been more flexible on the time frame for installation or even attempted a DIY installment of the boiler. When the Investment Home needs a fix and it involves those that rent we have decided to use our trusted contractor, other items such as landscape or painting is a DIY project waiting to happen.
My parents are in town and since my Dad misses grass, since he now lives in Arizona, and loves to do landscaping, I saved a small project just for him to do almost whatever he wanted. Before he started to do the work, we developed a game plan so we were on the same page, this is where the Home vs Investment Home came up again.
Home-Let’s plant some tomatoes, I’ll put in all the tomatoes with the wire cages and in no time you can have fresh tomatoes right off the vine. That sounds great I want my own mini-garden.
Investment Home-Anything that we plant needs to be as hands off as possible, if we buy plants make sure they are perennials, plants that come back year after year (Hopefully). Another example of hands off is we don’t buy the regular mulch we instead buy the rubber mulch which in the long run saves time and money.
In the end, we went with the Investment Home choice, because that’s what we have and that’s the best decision for our bottom line. Down the road when we are less focused on Financial Independence and maybe even live in a Home that we can focus more on the gardening, man cave, and where the grand piano will go, the decisions will be different.
Do you own an Investment Home? Do you still make Investment Home decisions even though you own a Home?