Wednesday, August 19, 2009

Should you buy a Fixer?

Q. We’re thinking of buying a fixer-upper as an investment. What’s the best way to find a deal without being taken to the cleaners?

A. Many people make good money buying rundown properties, fixing them up, and reselling them for a profit.

The best strategy for finding a profitable fixer-upper is to find the least desirable house in the most desirable neighborhood. Then, examine whether the cost of fixing up the property to its full market value will yield a significant profit.

You can find a fixer-upper in most communities—even in more affluent neighborhoods. One of the best ways to find a fixer-upper is to ask a real estate agent. Most agents have one or two properties they don’t like to show. You also can look for advertisements with phrases like “handyman’s special,” “needs TLC,” “or earn your down payment.”

The most profitable fixer-uppers will only need minor repairs like inside and outside painting, new carpeting and flooring, new light fixtures, new kitchen cabinets, landscaping, or a thorough cleanup. Look at properties that can be bought at 20-30 percent below what the house will be worth after fixing it.

Avoid homes that have serious flaws like a sinking foundation, structural damage, serious termite infestation, or that need a new roof. Also, avoid fixer-uppers that don’t fit in their neighborhoods, such as a two-bedroom, one-bathroom house in a neighborhood of three and four bedroom homes.

To get an idea of the finished market value, look at comparable properties in good condition. To determine the cost of fixing any existing problems, hire a good inspector. A competent inspector can save you from making a bad investment. You can find one through the American Society of Home Inspectors’ website: www.ashi.com

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