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Buying "Fixer-Uppers"
 Ask many a home buyer about the type of house they are looking for
and many will reply "We are looking for something we can fix up and live in (or resell). We like the idea
of gaining some quick sweat equity." The classic "fixer-upper" home. Unfortunately, there is a bit
of fantasy in the notion, though. First of all, there are many more fixer-upper buyers than there are fixer-upper
properties. Second, the current thinking in many minds is that anyone can make a killing in the Real Estate market,
which is not always the case. Third,
many buyers totally mis-estimate both the cost and the time involved in fixer-uppers, severely impacting (and in
some cases destroying) the profit potential. Unless you are fully prepared to deal with the realities of fixer-uppers
rather than the fantasies, it probably is a good idea to look elsewhere for a home.
This does not mean that there isn't equity to be gained (or profit to be made) by purchasing the RIGHT property
at the RIGHT price. The important notion is to understand that there are several factors that will make the difference
between winning and losing in such a transaction.
The Mindset
The first factor that must be understood is that it isn't going to be easy. The only people who think that finding,
buying, fixing and selling a home is an easy task are those who have never done it. Those with any experience (even
if only once) will tell you that it rarely is as simple as it appears. In general, it is best to assume that repairs
will cost twice what you estimated, take double the amount of time and,when finished, the house will be worth less
than expected. If you keep that in the forefront of your thinking, the chances of being burned are much less.
Foreclosure sales are often good sources for fixer-upper properties. A couple of resources that specialize in listings
of those types of homes are and . All three of the resources above offer free trial periods to evaluate their services
and search for foreclosure listings in the area in which you are interested.
Start Out Small
Some of the worst examples of mistakes made by buyers of fixer-uppers are first-time buyers who bite off way more
than they can chew. Examples of this are houses that have structural problems or will take an exceptionally long
time to repair, or are located somewhere other than a desirable neighborhood. These can be a horrible drain on
finances, time and peace of mind.
A much better strategy for the inexperienced is to purchase a home in a desirable neighborhood that is in need
of cosmetic attention--new paint, carpeting, appliances, landscaping and the like. These repairs can either be
handled by the homeowner or are easily contracted out, saving time, effort and money. Yes, money can be made on
homes needing major renovations, even if they
are in less popular neighborhoods, but these are jobs for professionals, not homeowners (and definitely not for
first-time homeowners!)
Avoid Surprises
The most expensive situations are often those that are the least expected--those nasty little (and often big) surprises
that jump out at you. You can avoid many of these surprises, though, with a couple of easy steps taken BEFORE final
commitment to a property.
1) Have the property thoroughly inspected. Have the inspector detail all obvious (as well as potential) defects
in the property. NOTE: The seller may say "we are selling the house as-is, so NO inspections." Avoid
this property like the plague.
2) Run the numbers. You must know the market values for houses in the neighborhood in which you are interested
that need no repairs. Running the numbers means working them backwards to see how much equity or profit may be
available (or even IF there will be any) in the deal. You will need to begin by computing the realistic value of
the home when all repairs are made. From that point, you will need to subtract any selling expenses you will incur
(commissions and the like) as well as the full cost of repairs and, most importantly, the amount of desired profit
or equity.
Example:
$120,000: Expected Sale Price, Repaired
-7,500: Selling Expenses
-17,500: Repair Expenses
-10,000: Desired Profit/Equity
$85,000: Maximum Property Purchase Price
Don't be deluded into thinking that you'll be able to sell for more than the market value or do the repairs for
less than the estimates. If the numbers don't fit--with a good amount of "wiggle room" for more expense
or handling costs or if the property does not sell quickly--don't waste your time or your money!
Summing Up
When considering a fixer-upper, whether for resale or to live in with increased equity, go into the process fully
prepared so you will avoid many surprises. For your first project, only consider structurally sound homes in good
neighborhoods requiring cosmetic repairs only. Have any property you are considering fully inspected and then get
firm estimates for all needed repairs. Most importantly, "run the numbers" to be certain that the potential
for gain is truly there. If you are satisfied on all counts, you may very well be able to be successful with your
fixer-upper project!
For a guide to buying, renovating and selling (or renting) fixer-uppers, see Investing in Fixer-Uppers
A Complete Guide to Buying Low, Fixing Smart, Adding Value, and
Selling (or Renting) High at Amazon.com
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