Fixer Upper House

Trying to decide whether to buy a fixer-upper house?

 Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.

1. Decide what you can do yourself. 
TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house. 

• Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.
• Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

2. Price the cost of repairs and remodeling before you make an offer.

• Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do. If you’re doing the work yourself, price the supplies.
• Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

3. Check permit costs.

• Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it’ll cause problems when you resell your home.
• Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.
• Factor the time and aggravation of permits into your plans.

4. Doublecheck pricing on structural work.
If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems. 

Get written estimates for repairs before you commit to buying a home with structural issues. 

Don’t purchase a home that needs major structural work unless:

• You’re getting it at a steep discount
• You’re sure you’ve uncovered the extent of the problem
• You know the problem can be fixed
• You have a binding written estimate for the repairs

5. Check the cost of financing.
Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings. 

If you’re planning to fund the repairs with a home equity or home improvement loan:

• Get yourself pre-approved for both loans before you make an offer.
• Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you’re not forced to close the sale when you have no loan to fix the house.
• Consider the Federal Housing Administration’s Section 203(k) program, which is designed to help home owners who are purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans. A streamlined 203(k) program provides an additional amount for rehabilitation, up to $35,000, on top of an existing mortgage. It’s a simpler process than obtaining the standard 203(k).

6. Calculate your fair purchase offer.
Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.

For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.

Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.

The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.

Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair. 


7. Include inspection contingencies in your offer.
Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:

• Home inspection. This is key in a fixer-upper assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1970s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.
• Radon, mold, lead-based paint
• Septic and well
• Pest

Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.

If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.

Fixing your home before selling......

Buyers tend to want listings that are in move-in condition. For that reason, sellers often put a lot of time and money into prepping their homes for market to realize the largest profit possible from the sale. But, is it worthwhile to fix a property up before selling if it is in a dismal state?

It's usually worthwhile to fix up a needy property in a good location that has great potential and that can be improved considerably with cosmetic improvements.

The reason why it makes sense to go through the effort is that most people don't have good imaginations and can't envision what a house might look like with work done to it. They simply relate to what they see.

For example, last year a grand old home sold in Oakland, Calif. Neighbors went directly to the sellers and asked if they could take a look at the house before it was fixed up for marketing. The sellers agreed and showed them the house. The buyers didn't like what they saw.

The house was subsequently improved by removing wall-to-wall carpet and refinishing the original hardwood floors that were underneath the carpet. The entire interior of the house was painted in beautiful decorator colors. Light fixtures were updated; the yard was spruced up; and the house was staged for sale. The transformation was stunning.

The property sold with multiple offers for considerably over the asking price. The buyers who had turned the property down before the house was fixed up were one of the four bidders; they weren't the ultimate buyers.

HOME SELLER TIP: 

There's a tip to be gleaned from this experience that's relevant to all sellers. Don't let a prospective buyer look at your home until it has been prepared for sale. Buyers remember what they see, not what you tell them the house will look like when you're done with the prep work. You could lose a good prospect by showing your home before it is ready.

Circumstances may not permit you to do much to a fixer property before you put it on the market. You might be short of funds or have a pressing deadline. In this case, the best approach can be to take advantage of the fact that the property you're selling is a fixer-upper. In other words, market it as a fixer.

Some sellers bridle at the notion of calling their home a fixer-upper. But, it can make good marketing sense. A certain segment of the market is looking for fixer properties that can be improved to increase value. In fact, these buyers sometimes overpay for the perceived potential.

Even though you might get lucky and sell a loser house for more money that you thought was possible, don't lose sight of the fact that you're marketing to a limited pool of buyers. Most buyers won't even look at a fixer because they don't have the time, expertise or resources to turn a property around. Listing a fixer at an enticing price is an important part of selling it for a good price. The list price should reflect concessions made for work that needs to be done.

To attract a fixer buyer, make sure you get broad marketing exposure. It's also a good idea to have pre-sale inspections done. Make the reports available to buyers to review before they make offers. This will help to minimize the chance of a deal falling apart when the buyer finds out the extent of the necessary work.

THE CLOSING: 

Even if you don't do fix-up work, the yard and house should be clean and free of debris so that the fixer buyers with vision will be able to see what the property has to offer.

4 Types Of Home Renovation: Which Ones Boost Value?

"Fix it and flip it" is a phrase often associated with real estate investing. The idea behind the concept is that the completion of a few choice remodeling projects will add significant value to the price of a home. 

With this in mind, many homeowners undertake major renovation projects before putting their homes up for sale with the idea that sprucing up the place will result in big bucks. More often than not, these upgrades fail to pay for themselves. Read on to find out how to renovate strategically and which renovations really add value to your property.

The Difference between Investors and OwnersUpdating an investment property is generally a sound strategy because successful advocates of the fix-it-and-flip-it philosophy buy run-down homes at bargain prices and save money on the repairs by doing most of the work themselves. A little sweat equity goes a long way toward making a real estate investment profitable.Investors carefully choose their remodeling projects, focusing on those that will result in the most value for the least amount of effort and cost. Part of the process includes paying attention to the other homes in the neighborhood to avoid over-improving the property. If none of the other houses in the area have crown moldings and Corian counter tops, adding these amenities is unlikely to result in a significantly higher selling price.

Owners, on the other hand, often take a less strategic approach to remodeling when sprucing up their homes prior to putting them on the market. As a result, they can end up putting significantly more money into the project than they will get back out of it when they sell.

To make the most of your remodeling projects, it pays to keep four types of projects in mind : basics, curb appeal, value added and personal preference.

The BasicsThe basic are the things that buyers expect when they purchase a home. This includes a roof that doesn't leak, functioning gutters and downspouts, a dry basement, a good furnace, solid floors, walls that are in good repair, retaining walls that work and all of the other common-sense items that you expect to find in a home.

In upscale properties, this includes air conditioning, a certain number of bedrooms, bathrooms and garages, and any other amenities that are common to the neighborhood, such as a swimming pool.

Adding these items to a home that lacks them doesn't add value, it merely brings the property up to the standard level of the rest of the homes in the area. Money spent on these items is unlikely to be fully recovered, but should at least result in ensuring that the home sells for a price that is comparable to other homes in the area.

Curb AppealItems that add curb appeal help the property to look good when prospective buyers arrive. While these projects may not add a considerable amount of monetary value, they will help the place sell faster. Curb appeal items include a nice green lawn, attractive landscaping, fresh paint inside and out, new carpet and new appliances. If you know that a prospective buyer is due to arrive at a certain time, baking an apple pie just before the arrival is an easy way to set the stage, make your house smell good and create a warm, inviting atmosphere. 

Adds ValueThe projects that add considerable value are big favorites of fix-it-and-flip it advocates. While most of these efforts will not recoup their costs, some will come close. Projects that offer the most bang for the buck include new siding, kitchen remodeling, bathroom remodeling, new windows, decks and the addition of living space. The National Association of Realtors cites siding, kitchens and windows as some of the most beneficial projects, often recouping 80% or more of their costs during resale.

Personal PreferencePersonal preference projects are nifty items that you want but that other people may not like or be willing to pay to get. In most areas of the country, these include amenities such as swimming pools, tennis courts, hot tubs, wine cellars, basement game rooms and ponds. There's certainly no harm in adding these items to your house, but don't expect potential buyers to be willing to pay a premium to get them when you are ready to sell.

House and HomeRegardless of the project that you are considering, remember that your primary residence is not just a house, it's your home. If you plan to live there for many years to come, add amenities that you want to have regardless of their impact on resale. When it's time to sell, do the basics to get the property up to par for the neighborhood and add some curb appeal, but don't bother undertaking an extensive array of projects strictly in an effort to increase the value of the property. Even with the projects that are known to add value, the chances are good that you will spend far more money than you will get back in return.