Hannah Hammond explains why buying the cheapest house in a desirable neighborhood maximizes profit. Renovate it to match top-tier units, live there two of five years, then sell tax-free under the primary-residence exemption. Repeat the cycle to compound wealth.
Chapters
You've probably heard that you should buy the worst house in the best neighborhood. That is sage and golden advice. If you always buy the least expensive home in the neighborhood, you always buy the worst home, the cheapest home in the neighborhood, your spread for equity building is much larger than if you buy the most expensive house in the neighborhood. And I had this conversation with one of my clients because he really wanted to be on this other side of the neighborhood, but he's like, "I'd be in the cheapest house on the expensive side rather than the best house on the other side." I said you always want to be the cheapest house on the most expensive side, because that way you have plenty of room for your equity to go up instead of down.
That's exactly right. Buy the cheapest house in the best neighborhood, because that spread of the equity that you have between the most expensive and the least expensive is where you make all your money. And so you can use this strategy, which I use this strategy when I first got into real estate investing, I bought a condo in a good neighborhood that needed a full renovation, the cheapest condo in the complex, then I knew that I was going to go in there. And if I would renovate it like the nicest condo in the complex, my condo would then be worth that much money versus if you just go buy the nicest, newest thing, then what if the market drops? Or how do you really add value to that? You're just going to lose value more than likely other than inflation and appreciation over time, but the quality of the property goes down and eventually at some point you're going to have to renovate it. So buy the cheapest property in the nicest neighborhood and then you can even go one layer deeper and live in it for 2 years and then do it again in 2 years, sell it and not pay any capital gains taxes because it was your primary residence 2 out of the last 5 years. And you can use that to compound your wealth, compound your profits in an amazing way by using the strategy of buying the cheapest house in the neighborhood.
