photo: sea turtle
Consider yourself handy? If you’re looking to buy a home, a fixer upper may be right for you.
Whether you’re thinking of buying one to flip or to live in, you’ll have to be willing to commit the time and money it takes to do the repairs, even if you get the house on the cheap. The good news: thanks to the record number of foreclosed homes for sale, finding a fixer upper is not going to be a challenge.
Fixer-upper homes come in various degrees of deterioration, from ones that only need cosmetic repairs like paint and new flooring to those that need serious repairs like a new roof, bathroom and walls. While they do come at a reduced price, you’ll have to invest money and time to improve the home. Having a construction background or knowing someone that does will help you prevent buying a money pit.
Finding a Fixer Upper
You go about finding a fixer-upper pretty much the way you look for any home: work with a real estate agent or scour the listings yourself. Your best bet is to focus on foreclosure notices: these days many of the fixer uppers are homes that have been repossessed by the lender.
Since many areas of the U.S. are still experiencing a high number of foreclosures and banks are anxious to unload those homes, perusing so-called real estate owned (REO) listings for fixer uppers is a quick and easy way to find one, says Jessica Gopalakrishnan, a spokewoman for HomeGain, a website that offers online property valuations. One of the most effective ways to find foreclosures in your target area is to go to the county court house and ask about upcoming foreclosure auctions. You should also be able to get a list of the properties about to be auctioned off. (You should know, however, that if you are planning to buy a house at an auction, you will be expected to hand over a 10% down payment on the spot. Many of those properties are auctioned off to professional investors or, if lacking a bidder, go back to the lender.)
If you’re using a real estate agent, ask him or her to show you homes in need of repair in the neighborhood where you are looking to buy. Typically real estate firms will have a Web site with their listings that you can search through. Another option is to keep your eyes open when driving or strolling through your desired neighborhood. See how long houses stay on the market and go to their open house to see if they are fixer upper candidates.
“The key to finding a home where you can have some leverage is the days on the market stat,” says Mitch Ribak, a Florida realtor. “This tells me how much I can work the seller to get a deal.” If a foreclosure home has been on the market for more than ninety days, you should be able to negotiate a good price with the bank. The last thing you want to do is get into a bidding war.
Knowledge is Key
After you’ve found your fixer upper, you’ll have to figure how much work is needed and how much that work is going to cost. That’s where a knowledgeable person comes into play. Sure, you may have built a deck or put down wood floors, but can you tell if the foundation is cracked, the roof is about to cave in or the insulation is no longer doing its job? Real estate experts say it’s paramount that you or someone close to you has the knowledge to assess the true cost of the repairs.
“If you don’t know what you’re doing, assume the costs will probably be at least twice what you think,” says Raylene Lewis, a real estate agent for Century 21 Beal in College Station, TX. You’ll have to budget for unexpected costs if, say, the entire roof needs to be repaired or the home needs a new hot water heater.
Buying a fixer upper was long a dream for Mindy Wagner and her husband. But once they did, reality sunk in. Wagner, who wrote a blog about the restoration of her Victorian home, says the two main factors to consider when buying a fixer upper are your time and money. If you plan to do the repairs on your own, you’ll have to give up most, if not all of your free time. If someone else is doing it, you’ll have to have a good contractor to do the repairs. The Existing Home Retrofit Tax Credit can help defray some of the costs. It gives you up an up to 30% credit for the cost of energy efficiency improvements.
Knowing your limitations will go a long way in making the entire process easier. Wagner avoided homes that were in need of complex repairs such as foundation work and whole-house rewiring and had a financially safety net for unplanned disasters. She also relied on an inspector to do a thorough assessment before buying.
“Know that the reality of living in a fixer-upper is not nearly as exciting as the daydream, and that it involves a lot of stress,” she says.