Buying and Rehabbing a Fixer-Upper Home
If you’re looking for a way to get into real estate and you are at least somewhat handy or enterprising, buying an old house and fixing it up can be a great thing to get involved with. For one thing, it allows you to really get a sense of what purchase and resale of houses is all about. You get to go through the whole process of estimating the house’s value and finding ways you can improve that value. This forces you to get an in depth sense of what is involved in residential real estate rather than simply taking the word of an appraiser, contractor, or real estate agent. And the creative, constructive process of bringing a house back from the edge of ruin has rewards that are more than monetary. It is a stimulating, fun, experience that helps both you and the neighborhood the house is in.
Well how do you do you find a house that needs fixing up? There a variety of ways. In some cases, just as with say automobiles, distressed houses are advertised as such. You may see ads for them in your local paper or on classified ad or real estate sites. When comparing these homes you must take into account the type of work needed and your ability to do this work at an acceptable cost. Some work such as on the foundation or installing all new windows will take professional help. Other things like installing tasteful faux wood blinds can be done on your own. If they are so advertised, chances are they will be below the going market rate, because the seller mainly wants to get rid of them. Or you may simply find people advertising houses without knowing how much work they need. Either way you need to make sure there is room in the deal for you to make money when you resell the house, and that means being familiar with the market value of the area yourself.
Often people buying and repairing houses consult a number of sources in order to find out the market value of the house - the price the house would sell for if it was in good condition. They may consult real estate agents or personal wealth management consultant, or, simply look in the paper for houses in similar areas with similar square footage, or use online estimation sites and tools.
Once you have a sense of the market value you can begin estimating repair costs and arrive at an offer to the buyer that will allow you to still make a profit over and above those costs. Other costs such as closing costs must also be factored in. Some homes may need only minor work so as updating carpet while another may need all new flooring throughout the home. You will almost certainly need to make a detailed inspection of the house and possibly call in a contractor to get a real sense of repair costs will be, and you should probably have a real estate professional of some kind at least advise you on the deal from a financial standpoint.
Once all of this has been arrived at, the seller accepts your price, and you’ve bought the house, it’s time to get going on the repairs. Sometimes people actually move into a fixer upper and work on it themselves. This is, in fact, one of the more relaxed, cost effective, and rewarding approaches. You save tons of money by using contractors only for large and difficult repairs, or not even using them at all. In the latter case your only direct fix up costs are materials.
The issue here, of course, is time – to totally rehabilitate a house definitely takes time, and that time will be extended quite a bit by the fact that you may not have large crews, high tech tools, and extensive remodeling experience. You will also probably have to schedule it around jobs or other activities you’re involved in, extending the time frame still more. Nevertheless, rehabbing a house this way is such a fun learning experience that it is often worth the extra time and effort it takes. Remember too that if you buy a house that needs mainly cosmetic repairs, the time investment and materials costs will be much more manageable than if you buy one that needs things like extensive structural, plumbing, or electrical repairs.
The other approach is to call in a contractor to make the necessary repairs. If you’ve done your homework regarding the costs of these repairs and the profit potential of the house, after buying the house and paying the contractor you should still be well below the estimated market resale price of the house. Somewhere between 20k and 50k should be available as profit on a reasonable rehab deal. People often resell the house quite quickly after they call in contractors in order to recoup the funds that they’ve put into a house. This can also be a fun and lucrative experience that will make you a much more experienced real estate investor.
So consider buying a fixer upper. It is a great way to get into the nuts and bolts of real estate investing, or to find a house to live in at a reasonable price. It benefits communities by renovating and revivifying their residential areas and in general it is a positive and constructive experience.