Some people, while combing the real estate ads, shy away from the cheaper listings labeled, "Handyman Specials" or "Fixer-Uppers". These properties have often been neglected and mean extra work for the new owner. This is true, but for a smart buyer, this translates into "profit".
Don't get me wrong, investing in a distressed home is not easy money, but the opportunity to make a substantial profit from restoring these houses can be very real. The possibility of losing money is also a reality, and the investor needs to do their homework and know exactly what they are buying and what sort of profit they can expect. Here are some of the considerations when assessing a potential investment property:
Use a professional realtor or appraiser to determine a realistic selling price based on the market and the neighborhood. You can complete a dream renovation, but if the neighborhood can't support the type of buyer you are attracting, your home will never sell. If the market is declining and home prices are dropping, this too will affect your selling price.
Use the services of a house inspector to get a detailed analysis of the condition of the home. Learn what is worth fixing and what you should walk away from. Will you mainly be concerning yourself with cosmetic repairs or will you be ripping out plumbing or making costly repairs to the foundation?
Assess which improvements you will be able to handle on your own and which you will have to contract out. When calculating the costs, make sure you get at least three estimates for these, you will be surprised at how much the price can vary. Determine if a building permit will be required, as the cost should also be added to your budget. Get a good understanding of which renovations increase the resale value of the home and stay away from the one's that will only add to your bottom line.
Most fixer uppers are the result of some form of distress sale, be it divorce or bankruptcy; these people want to unload it quickly and that sense of urgency can work to your advantage. You may be able to negotiate a lower selling price by offering a quick close on the house.
Another option is to buy new, have a builder complete the shell of your investment property, and you complete the inside, making the profit on all the finishing work. Often you can have the property sold before you build; the money down subsidizes the interior renovation.
Whether building new or renovating you will need to do a cost analysis to determine whether this investment will yield the profit you are expecting. Calculate the buying costs, selling costs, closing fees, legal fees, commissions, taxes, interest on loans, repairs, miscellaneous fees and take this total (probably pretty big), and subtract it from your expected sales price. Decide whether this final figure is worth the effort.
Investing in fixer-uppers is a very simple process; you need to know what to look for in a bargain house, be thorough in completing your cost of repairs vs. selling price analysis, and then sell it at a profit.
