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5 Ways to Spot a Home with Hidden Potential

Remember metal detectors?  Fast forward a couple of decades, and what seems to be our constant craving for a treasure hunt has shifted to a different medium, fed most prominently by PBS’Antiques Roadshow. Loyal viewers like myself watched “The Roadshow” with anxious anticipation for those twin appraisers to come out, before they got their own show. When those guys showed up, it was usually a sign that someone’s auntie’s hideous chest was about to be deemed worth six figures.

But there’s a real estate version of this treasure hunting phenomenon, too – and it’s not recreational. Rather, the search for a home with hidden potential is most often undertaken in the very serious effort to stretch every ounce of home-buying power out of a savvy buyer’s real estate dollar. Some buyers’ lifestyles require them to focus on home they can move right into, with no work to be done – and their budgets allow them to do so. But others know that the gap between the home they eventually want and the home they can afford right now is so wide that the only way they’ll get their dream home is to buy it while it’s still a diamond in the rough. (Very rough, in some cases.)

1. Significant discount compared to other homes in the neighborhood.By definition, hidden potential is all about unrecognized and as-yet-untapped value – the gap between what you pay for a home in its current state and what it can be, monetarily and otherwise, with your investment of time and energy. If the discount is not significant, the potential is not hidden – it’s already being realized by the current owner (i.e., not you)!

Don’t expect the homes with the most hidden potential to announce themselves  and –  their discounts – as such. The discount you must ultimately be  concerned with is the discount that is reflected in the ultimate sale  price (not the list price) vis-a-vis the comps (recently sold homes in  the neighborhood).  So, one way to manifest hidden potential is to look  for homes that are listed at only a slight discount (or no discount at  all!) and have lagged on the market a very long time compared with the  average in their area, then negotiate a meaty discount from the seller.

The other critical discount to look for is a significant discount between  what you can secure the home for and what it will cost you, in total,  after you put in the work necessary to manifest the property’s  potential. Anyone can turn any old hovel into a palatial estate if  they’re willing and able to spend and spend and spend.  True hidden  potential is about latent possibilities that can be unveiled, not  created from scratch and at great expense. The only way to truly know  what this discount will be is to educate yourself about what the various needed improvements will actually cost, by obtaining estimates from  contractors and/or pricing DIY projects out.

2. Really, really bad cosmetics. First, let’s be clear – many homes with bad  cosmetics don’t have great potential, or are insufficiently discounted  for the home to truly reflect much potential at all. However, there are  two flavors of bad cosmetics that can signal great hidden potential. The first are homes that were almost overly loved by their previous owners – they are in excellent shape inside and out, but they have been so  heavily customized with terrible cosmetic choices and unattractive  finish materials that other buyers are completely turned off. I speak  from experience: when I bought it, my first home had wallpaper featuring kittens (no joke) on more than one wall – and it turned out to be a  fantastic home and investment.

3. An unfortunate backstory. Often, homes with hidden potential are those  that have fundamental, structural integrity and well-functioning systems (plumbing, heating, etc.), but have been less well-cared for on the  surface. And in some cases, what caused the surface neglect is an  unfortunate set of circumstances affecting the previous owners/sellers.  By no means is spotting homes with this sign of hidden potential  unethical or taking advantage of another’s misfortune, as some might  suggest. In fact, if that’s even a concern, rethink it: there’s not a  single thing wrong with recognizing and activating the potential the  previous owners were unable to nurture due to their divorce, family  dispute, age or budget limitations.

4. No photos. To be completely fair, this one is more about finding hidden  opportunity than hidden potential, per se. The vast majority of home  buyers start house hunting online and simply refuse to go homes whose  listings lack photos.  Sometimes homes are listed without photos because of bad cosmetics or deeper condition issues; other times, because of  technical difficulties that have zero to do with the house, its look or  its condition.
If your dream home has been elusive, consider taking the time to go check  out a listing with the ‘just right’ specs, in terms of square footage,  beds, baths and neighborhood – even if it doesn’t have photos. If you’re house hunting in an area or at a price point where there will  undoubtedly be multiple offers on a great home, a home with no or only  one listing might offer you an opportunity for low or no competition on a great property – or one with great potential.

5. Great neighborhood, square footage and floor plan. It can be relatively  simple and inexpensive to manifest a home’s potential when it can be  converted into your ‘dream’ home without having to move or add any  walls. It’s also much more likely that you’ll hang in there through the  discomforts and uncertainty of the seemingly endless process of  remodeling (rather than selling it in despair, before you’re done) if  the home is of ample size and optimal layout to house your family and  your activities as they evolve over time.

Also, many folks find that a fantastic home in a not-so-great neighborhood is  less desirable than a not-so-great home in an fantastic neighborhood;  the latter can be easier to live in and stay committed to during the  course of the remodel as well. Accordingly, homes with the ‘just-right’ square footage and floor plan that also happen to be located in the ‘just right’ neighborhood are the ultimate hidden potential triple  threat.

Source: Tara@trulia, August 22, 2012

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