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2) Don't pay too much, especially if you want to
resell quickly. If you overpay, you may suffer a loss
when you sell. In terms of investment potential, the best
time to buy a fixer is when the market has bottomed out and
is turning around. The worst time to buy is when the market
has peaked and is starting to decline. Research the
potential market for the restored fixer-upper, and make sure
that your plans for the house don't result in an
over-improvement for the neighborhood.
3) Estimate renovation costs accurately before you
buy. If you miscalculate, your profit will dwindle. Have
the property inspected as a condition of the purchase,
particularly if you buy it in "as is" condition. You'll
reduce the chance of having to fix unanticipated defects.
4) Evaluate the floor plan. With a good basic
layout even the most hideously decorated house is an ideal
fixer-upper. On the other hand, a house that seems a maze of
rooms may have a defective floor plan that no amount of
paint and paper will remedy.
5) Renovate wisely. In planning your remodel, keep
resale value in mind--even if you plan to live in the house
for some time. Kitchens, bathrooms and storage spaces are
important to today's buyers. Curb appeal sells houses, so
concentrate on improving the landscaping and front entry.
Also, stick to neutral color schemes.
Creative Financing for Fixer-Uppers
Nailing down the money to remodel FHA Title 1:
Short-term, fixed-rate loan; allows buyer to borrow up to
$25,000 to make specific home improvements to a house, such
as upgrading the kitchen.
U.S. Dept. of Housing and Urban Development 203(K):
Long-term, fixed-rate loan based on expected market value of
home after renovation; allows buyer to purchase a
fixer-upper property "as is" and rehabilitate it; down
payments range from 3 to 5 percent.
Seller financing:
Loan terms negotiable; seller may pay for some or all of
the work before closing, or carry a second loan for repairs
or home improvements.
Assumable adjustable rate mortgage:
Long-term flexible loan; allows loan to be included with
house when it is resold; ideal for remodeling buyers who
want to do the work, then turn around and resell again.
Combination loan/equity line:
Long-term, fixed-rate loan combined with short-term line of
credit; allows the buyer to take out an equity line of
credit to pay for renovations after closing (loan may be
paid off by refinancing on higher appraised value).
TIP: You can also get a seller to pick up all or
part of the cost of home improvements if you negotiate for
them as repairs required after a home inspection. Many
sellers prefer to lower their asking price and sell the
property "as is" instead of financing the repairs. This
presents fewer problems for the seller and the buyer can
close the deal easily.
Other Bargains: A Short Course
Some real estate investors make a career out of buying and
selling foreclosure, probate and short-sale properties, but
it's a dangerous business for the inexperienced. If you're a
first-time buyer, consider working with an agent or lawyer
who has experience in such properties.
Foreclosures
If a buyer can't keep up with loan payments, their
lender will foreclose on the mortgage and put the property
up for auction. If the auction fails to produce a buyer, the
property reverts to the lender, which then offers it for
sale. You can purchase other foreclosure properties through
the Federal Housing Administration (FHA) or the Department
of Veterans Affairs (VA). Check local legal ads and, in the
case of FHA and VA properties, the Internet.
*********** CAUTION *****************
If you buy a foreclosure property, you may have to agree
to an all-cash deal with no contingencies and buy the
property "as is." Always get an inspection to avoid buying a
house with major defects. You may also have to deal with
eviction proceedings if the current owner hasn't vacated the
property.
Probate sales
Probate property is sold to settle the estate of a
deceased owner. These properties may be listed with an
agent, though some sales take place at a court hearing.
Because the estate's executor or a court administrator
coordinate the sale, you may or may not get a bargain price.
Their interest is to get the best price they can.
If the heirs dispute each other over who has the legal
right to the property, it may not be saleable until estate
matters are settled. Always get an inspection to avoid
buying a house with major defects.
Short sales
A short sale occurs when a lender reduces the amount of
the loan payoff on a home, which it may do for a seller who
can't cover the mortgage due and closing costs in order to
sell. Many lenders prefer to clear such a loan from their
books, even at a loss, to avoid the cost of foreclosure or
having the house in their inventory. This can make for an
attractive deal for a bargain-hunting buyer.
Make sure your purchase contract includes a time frame
(30 days) for the seller to obtain written permission from
the lender to conduct a short sale. Prepare for a tough
negotiation. As always, get an inspection to avoid buying a
house with major defects.
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