Choosing a Fixer-upper to Invest In
This real estate market presents many opportunities for both the seasoned and unseasoned investor. However, in many areas, real estate is still losing value, and for this reason, there are checklists of things to keep in mind when looking for that perfect fixer-upper.
For the novice who is looking for rental property, there are factors to consider. Rental property can often provide extra cash flow if it has more than one unit. Duplexes or triplexes are an excellent choice for the investor who is starting small. Also, finding a larger home in a multi-family zoned area lends itself to conversion, as an extra rental unit. Two smaller rentals often produce more income than a single family home.
For a primary residence, the current market offers many fixer-uppers. For first-time home buyers, it is necessary to first ensure that the dwelling is in good, or at least fair condition. Unexpected repairs for a roof, electrical system, or plumbing, can turn a "great deal" into a nightmare, quickly. Additionally, termite infestations or unseen water damage needs to be identified by an objective building inspector who is not affiliated with the bank that will carry the loan. This may mean two inspections, but the added cost up front may save thousands of dollars later. Mortgage payments may be lower than rent.
The "quick flip" property may have challenges in this economy. The reason is because in many areas, the market is flooded with short sales from banks that just want to get something back from foreclosed properties. This means that any property an investor purchases, repairs, and sells will be in competition with local bank offerings.
Many areas are in transition, due to foreclosures and short sales. What were once great areas may now be in some degree of economic decline. Researching recent sales in the area is a good idea. Has there been activity in the area? If so, what are the prices for comparable homes? Will the cost of rehabilitating a fixer-upper allow financial room for profit if the plans are to resell? Fixer-upper costs must allow for unforseen problems, in addition to real estate broker services, closing costs, inspection costs and hidden tax or insurance. The buyer must make sure there are no liens on the property, as well.
In many areas, home prices are still in decline. The investor's plans for the fixer-upper may help indicate whether a purchase in any given area, and at this time, is financially feasible. Timing is important, and often over-enthusiastic homebuyers will purchase a home without fully understanding factors which can adversely affect purchases.
Fixer-uppers can also include mobile homes. These may or may not be in a mobile home park. They offer both an excellent choice for both primary residences or rental property. They are often much less expensive than a house, and many times resales are easier, due to lower price. Be aware, however, that many mobile home parks overcharge for lot rent and utilities. Consider a mobile home on its own lot. Repairs on mobile homes are often less expensive, insurance and taxes are, also. There are many books available on mobile home investment. One downside to mobile homes, however, is that banks are often reluctant to create loans for them, and alternative financing may have to be obtained.