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Tips for Buying a Fixer-Upper

  1. Decide what you can do yourself.  TV remodeling shows make home improvement work look like a snap.  In the real world attempting a difficult job you don’t know how to do will take longer than you think and can lead to less-than-professional results that don’t increase the value of your fixer-upper house.
  2. Do you really have the skills to do it?  Some tasks,like stripping wallpaper and painting, are relatively easy.  Others, like electrical work, can be dangerous when done by amateurs.
  3. Do you really have the time and desire to do it?  Can you take time off work to renovate your fixer-upper house?  If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?
  4. Price the cost of repairs and remodeling before you make an offer.  Get your contractor into the house to do a walk-through, so he or she can give you a written cost estimate on the tasks to be done. If you are doing the work yourself, price the supplies.  Either way, tack on 10% to 20% to cover unforeseen problems often present in a fixer-upper project.
  5. Check permit costs.  Ask local officials if the work you’re going to do requires a permit and how much it costs.  Doing work without a permit may save money, but it’ll cause problems when you resell your home.
  6. Decide if you want to get the permits yourself or have the contractor arrange for them.  Getting permits can be time-consuming and frustrating.  Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit. Factor the time and aggravation of permits into your plans.
  7. Double check pricing on structural work.  If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems.  Get written estimates for repairs before your commit to buying a home with structural issues.  Don’t purchase a home that needs major structural work unless the following conditions apply: 1)  You’re getting it at a steep discount, 2) you’re sure you’ve uncovered the extent of the problem, 3) You know that problem can be fixed,  4) You have a binding written estimate for the repairs.
  8.  Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings.  If you’re planning to fund the repairs with a home equity, consider home equity line of credit or home improvement loan do the following:  1)  Get yourself pre-approved for both loans before you make an offer, 2)  Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you’re not forced to close the sale when you have no loan to fix the house,  3)  Consider the Federal Housing Administration’s Section 203(k) program; http://www.hud.gov/offices/hsg/sfh/203k/203kmenu.cfm.
  9. Calculate your fair purchase offer.  Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes), and then subtract the upgrade and repair costs.  For example:  Your target fixer-upper house has a 1960’s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.  Your comparision house, in the same area, sold last month for $200,000.  That house has a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.  The cost to the remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000.  Your bit for the house should be $160,000.
  10.  Include inspection contingencies in your offer.  Don’t rely on your friends or your contractor to eyeball your fixer-upper house.  Hire professionals to do these common inspections; 1) Home inspection.  This is key in a fixer-upper assessment.  The home inspector will uncover hidden issues in need of replacement or repair.  You may know you want to replace those 1970’s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.  2) Radon, mold, lead-based paint, 3) Septic and well, and 4) Pest inspection.
  11. Most home-inspection contingencies let you go back to the sellers and ask them to do the repairs, or give your cash at closing to pay for the repairs.  The seller can also opt to simply back out of the deal, as can you, if the the inspection turns up something you don’t want to tackle when buying a fixer-upper home.   If any of these situations happen, this isn’t the right fixer-upper for you.  Go back to the top of this list and start again.

Remember, if you have any questions, contact your realtor.  They will give you advice and walk your through the process.  Don’t get into something that is over your head.  It’s not worth being stressed and frustrated in your new home.  For more information go to (http://houselogic.com.

-Courtesy of House Logic

Until next time – Jan