B. Owner-Occupied
Fixers:
The phrase
"Buyer Beware" is never more appropriate than
when considering the purchase of a
fixer-upper. You really need
to know exactly what you're getting into before
buying.
It's
commonly believed that fixer-upper properties
represent easy money that is ripe for the taking
- that you can buy it, do a little work on it in
your spare time, and then resell quickly for a
large profit. Usually,
this simply isn't the case. Although,
with proper planning and foresight, good profits
can be made by buying fixers at less than market
value, making appropriate improvements and
repairs, and then reselling. And for
many first time buyers who intend to live in the
house while working on it, buying a fixer-upper
can be the very best option. It's less
risky buying a fixer-upper when you can live in
the house while fixing it. And of
course, by living in the house for at least 24
months you should be able to avoid paying
regular income taxes on the
profits.
The
most important thing to know before making a
decision on such a purchase is what needs to be
fixed. Any time
you are spending money on improving a home with
the notion of selling it later, strive to spend
your money on things that buyers can easily
see. Things
like new paint and removing trash from the
property cost little but have instant impact on
curb appeal. Houses
that have only cosmetic problems like peeling
paint, a trashy yard, bad carpet or wallpaper
are the best bet. This is
especially true for the first time buyer looking
to live in the house for a while before
reselling. Fixing
and cleaning cosmetic issues is fairly easy and
inexpensive. It virtually always gives gives a
good return on investment, particularly when you
can do the work yourself. Kitchen
and bathroom remodeling usually pays a nice
return. Don't be
afraid of buying a fixer-upper in need of this
kind of repair. Properties
with structural damage, or a floor plan that
requires major work to remedy, usually can’t be
"fixed up" at a profit.
Always have an
inspection for hidden damage performed by a home
inspector or construction professional before
buying a fixer-upper. Make sure
that satisfactory completion of such inspections
are a condition of purchase in any contract you
sign. Then be
sure to negotiate to try and get the seller to
pay for all or part of the cost of needed
repairs uncovered by the inspection.
Sellers
will be willing to lower the sales price to sell
the home "AS IS" instead of paying for the
repairs, but sometimes "AS IS" is improperly
used by Sellers to disguise serious defects.
However in California, "AS IS" has been
statutorily modified through required
disclosures to really mean "AS DISCLOSED".
Except for estate and trust conveyances,
foreclosures, and certain other statutory
exceptions, there is no such thing as a true "AS
IS" sale.
Be
careful that you don't over pay. Especially
if you plan to resell quickly, paying too much
up front can doom your plans for quick
profit. Research
the market for reselling and have an exit plan
for selling the house in place before making an
offer.
Don't
buy a fixer in a neighborhood that isn't
selling. Don't buy a fixer where the whole block
is comprised of fixers. The ideal neighborhood
to buy into is one where the fixer is the worst
house on the block, and all of the other homes
are well-maintained. Often it's the
neighborhood where the fixer is located that
determines whether certain repairs or
improvements can realistically add value on a
resale.
Finally,
use common sense - "bargain-shopping" for
fixer-upper real estate can become an expensive
lesson of "You get what you pay
for."
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