When buying an investment property, buy smart to profit later

Whether you're a rental property buyer, or you'd like to take advantage of today's great rates by purchasing a second home to fix up and sell later, it's important to think long-term. Follow the below tips to maximize your profit when it comes time to sell your investment property.

Unless you have a compelling reason, try to purchase the fixer-upper in the same area in which you live, or in a neighboring city. This way, you'll know the area (and quality of the homes), and you'll spend less time commuting to the home as you begin to fix it up.

Work with your Edina Realty agent to determine the current market conditions of the area, and ask how a full revamp of the home may affect the future sales price. While some houses may have plenty of potential, it's possible that even with significant improvements, their location will prevent them from ever becoming a moneymaker.

To keep the cost of purchasing down, consider opting for a foreclosure or even a short sale. In most cases, doing so will increase your budget to make repairs, as the prices of these “non-traditional” homes are usually lower. Because these homes are being sold under special circumstances, it’s critical that you have the home inspected by a trusted professional – or several. Ask the inspector(s) to assess the home for cosmetic work vs. structural or electrical deficiencies. It's important, as a buyer and investor, to know your limits for making repairs. Updating appliances and fixtures is one thing, but rewiring an old home takes a special skillset.

Read on for additional instructions on how to hire and guide an inspector prior to buying a home.

Can't decide between potential properties? When looking at homes, make a list of changes you’ll need to finance before selling the home. Be sure to include updates suggested by the inspector, as well as design updates you’ll make to make the home more aesthetically appealing to potential buyers. Compare not only the cost of making the changes, but also how interested you are in making the changes - will one home offer a unique opportunity for you? Consider also how much the property is likely to resell for, once the updates are complete. For an easy guide to the ROI of home improvements, view a localized guide from Remodeling Magazine.

Not sure what updates are standard before selling a home? Check out our tips on home maintenance and staging a home to sell.