Buying Guide: How to Buy and Sell Fixer-Upper Homes

Buying and fixing older homes is a profitable aspect of real estate which has attracted thousands of investors. Buying older homes is appealing because the sale price is typically lower. Moreover, real estate investors can qualify for special loan programs and grants to help finance necessary home improvements. Of course, buying and fixing an older home in not reserved for investors. In fact, if you are looking for a cheap mortgage, you may consider buying an owner occupant home, and complete home improvements while living in the home. Once the improvements are finished, you may choose to remain in the home, or re-sell for a profit. Before committing to a fixer-upper, consider the following factors.

Will the Home Be Primary Occupancy or Investment. Prior to searching for homes to buy and improve, determine your motive. Is your goal to reside in the home, or will the property serve as a real estate investment. If buying and fixing as an investment, you have two options: either improve the property and resell, or improve the property and advertise for renters.

There are advantages to both approaches. If reselling the property, this can put quick cash in your pocket. Vacant homes are cheap to buy. In this instance, investors can earn a large lump sum of money upon sale of the property. On the other hand, placing renters in the home will provide the investor with a steady cash flow. Another factor to consider with owning rental properties is the amount of time it takes to complete improvements and find renters. Ideally, investors should have a cash reserve which will cover the mortgage payment for a few months.

Location. Buying and fixing homes is the perfect business venture in some areas. However, it is not so profitable in other areas. For example, several cities across the nation are experiencing a housing boom. As a result, there are very few low priced homes.

If buying and selling real estate is a goal, it may become necessary to look outside your immediate area. Multiple listing services provide detail description of real estate properties from all 50 states. By utilizing this service, you may be able to locate a multitude of inexpensive home in nearby cities or states.

Before buying a fixer-upper project, conduct a comparative analysis of properties in the surrounding area. Although improving a property enhances the community, avoid too many enhancements. After home improvements, the home’s market value must be comparable to other home prices in the same community. For example, if homes in a neighborhood are selling for $100,000, and your fixer-upper appraises for $175,000, the odds of recouping your investment are slim.

Furthermore, avoid fixing homes in declining neighborhood. In this instance, it may be difficult to find a buyer. Beside, if home prices in a neighborhood are falling, it will be twice as hard to resell the property at fair market value.

Finding Properties. There are many different ways to locate properties. If possible, contact a realtor with experience working with investors. These individuals may have a listing of good fixer-upper homes. Aside from using a realtor, drive through older neighborhood and seek out “for sale” signs. Another niche entails buying vacant homes without “for sale” signs. Locating the owners of vacant homes is tricky. If the city government has taken possession of a home, buying the property may be as simple as paying the back taxes.

Thoroughly Inspect Home. Before submitting a bid for an older or vacant home, have the home thoroughly inspected by a home inspector. Homes with structural or electrical damage, and homes that require extensive repairs will cost more to repair. If you have a large budget, and dealings with home improvement contractors, undertaking a large project may be worthwhile. After reviewing the inspectors notes, contact contractors and obtain quotes. If the project is too expensive, pass.

If buying and fixing on a limited budget, stay away from properties that require extensive improvement. Instead, submit bids on properties that need cosmetic improvements. Cosmetic repairs consist of updating flooring, carpeting, fixtures, painting, cabinets, etc.

Get an Appraisal. Before buying a home, have the property appraised. Determine the current market value, and the estimated market value after improvements are made. If submitting a bid prior to obtaining estimates from contractors and appraisal, include a contingency that makes it possible for you to back out of the deal if the numbers are not favorable.

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