Fixer-Uppers - Q & A
Q: Where can I find fixer uppers in my area?
A: If you are interested in locating fixer-uppers or distressed properties, they can be found in most communities. Yes, even in the wealthier neighborhoods. Distressed properties are properties that have lower market values than the other houses in the immediate area due to the fact that they have been poorly maintained.
In order to be certain that the investment property you are interested in is in fact a wise investment is going to require some work on your part. For starters, you need to observe the most sought after houses in the area as well as the cost. In addition, you need to configure what the average house in the given area sells for.
Those who pursue this route, experts suggest they locate a “cosmetic fixer” which can be restored with paint, new wallpaper, new floor and window coverings. You should consider installing new appliances and giving the landscape a makeover. Completely run-down houses that are in dire need of major structural repairs should be avoided. Keep in mind that the price on a house that comes across as too good to be true probably is. Be an educated buyer and find out before buying.
Finding the least desirable house in the most desirable neighborhood is the basic strategy for a fixer. After doing so, your next step is to determine whether or not if all the expenses involved in order to bring the property back up to its full potential market value is well within your rehab budget.
Q: Are there fixer-upper loan programs available?
A: If you are interested in buying a fixer-upper to remodel but need a home loan in order to do so, look into the U.S. Department of Housing and Urban Development's Section 203(K) loan program. Houses consisting of one to four units which are no more than a year old are eligible for this loan program. A program that is designed to facilitate the major structural rehabilitation needed for these units. Condominiums, however, are not eligible.
If you plan to purchase a “fixer-upper” property “as is” and rehabilitate it or refinance your temporary loan to purchase and rehabilitate the property a 203(K) loan can either be done as a combination or rehabilitation-only loan.
Owner-occupants are only required to come up with 3 to 5 percent, however, investors must put down 1 percent. A minimum of $5,000 is required by HUD to be spent on home improvements.
In addition to the two appraisals needed, all plans and specifications for the proposed work needs to be submitted for cost estimation and architectural review. Periodically, mortgage proceeds are advanced to finance the construction costs during the rehabilitation period.
Q: What kind of paybacks are there on remodeling jobs?
A: If you are interested in knowing the return on remodeling jobs the annual, “Cost vs. Value Report,” produced by the Remodeling magazine will answer your question. It is important to remember that remodeling a home not only enhances its curb appeal to future potential buyers but it vastly improves its livability for you.
Older homes which have had extra amenities installed, their kitchens and baths refurbished or been given a home office addition have recently brought forth the highest remodeling paybacks. According to the survey, even though home offices are a relatively new remodeling trend, expect to recoup 58 percent of the cost.
Q: Are there rehab government programs available?
A: If you are interested in buying a fixer-upper to remodel but need a home loan in order to do so, look into the U.S. Department of Housing and Urban Development's Section 203(K) loan program. Houses consisting of one to four units which are no more than a year old are eligible for this loan program. A program that is designed to facilitate the major structural rehabilitation needed for these units. Condominiums, however, are not eligible.
If you plan to purchase a “fixer-upper” property “as is” and rehabilitate it or refinance your temporary loan to purchase and rehabilitate the property a 203(K) loan can either be done as a combination or rehabilitation-only loan.
Owner-occupants are only required to come up with 3 to 5 percent, however, investors must put down 1 percent. A minimum of $5,000 is required by HUD to be spent on home improvements.
In addition to the two appraisals needed, all plans and specifications for the proposed work needs to be submitted for cost estimation and architectural review. Periodically, mortgage proceeds are advanced to finance the construction costs during the rehabilitation period.
For a list of participating lenders, call HUD at (202) 708-2720.
The U.S. Department of Veterans Affairs offers loans to all veterans which can be used to buy a home, build a home, improve a home or to refinance an existing loan. Lower interest rates are offered with VA loans when compared to other kinds of loans available. The first step to qualify for a loan is to apply for a Certificate of Eligibility.
Another program is the Fedeal Housing Administration's Title 1 FHA loan program.
Resources:
* "Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.
Q: How do building codes work?
A: Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.
All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.
Building codes also cover most remodeling projects. If you are buying a house in Houston, TX that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.
Resources: * "The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.
Q: What are some reliable sources for information on home improvements?
A: "Ready, Set, Build: A Consumer's Guide to Home Improvement Planning Contracts" is a publication to consider using for those who are getting ready to embark on home improvement project which involves contracting help. This particular guide contains information in regards to consumer rights, liens and financing. It also lays out a road map for obtaining competitive bids up to what to include in a contract as well as selecting the right contractor.
The book is available for $9.95 through Consumer Press and Women's Publications, Inc., Dept. SR01, 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153.
Resources:
* Profiting From Real Estate Rehab, Sandra M. Brassfield, John Wiley & Sons Inc., New York; 1992.
* Remodeling magazine's annual "Cost vs. Value Report", available for a nominal fee from the magazine; call (202) 736-3447 to order a copy.
Q: For historic rehab are there any special tax breaks offered?
A: Currently, certified historic structures and qualified rehabilitated buildings enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. Historic structures are certified by the government and are listed in the National Register of Historic Places designated by a local historic district or an appropriate state.
Deductions for alterations or for the demolition of an historic structure are not allowed by the tax code. If you are interested in finding out if any changes have occurred in regards to this matter check with your accountant or tax professional.
Resources:
* National Trust for Historic Preservation, Washington, D.C.; (202) 588-6000.
Q: When it comes to finding a contractor are there specific guidelines to follow?
A: One should never hire a contractor without checking their credentials and references first. Contractor referrals from friends and colleagues is usually the safest route to take. Another step to consider, if your state has a licensing board for contractors, is to call to find out if there are outstanding complaints against the license holder. Lastly, contact the Better Business Bureau to any customers have filed complaints against the contractor in question.
After your contacts have been made and they satisfy your needs, interview the candidates of the contractor. One question to consider asking is what kind of compensation insurance the worker carries. Be sure to get the phone numbers for the policy and insurance company so that you can verify the information. Make sure the contractor has a general umbrella liability policy so that you are not liable for any work-related injuries incurred during the project. If the contractor is not covered, you will be liable.
If the contractor successfully passes the hurdle pertaining to insurance coverage, next check some of their reference they have listed. A reliable and honest contractor will be more than happy to provide as much information you request.
Finally, no matter how competitive the market may be, do not rush when it comes to making decisions. To avoid losing your money never pay the contractor for the job upfront.
Q: Is it a good idea to purchase a fixer-upper located in a bad area?
A: If you are interested in locating fixer-uppers or distressed properties, they can be found in most communities. Yes, even in the wealthier neighborhoods. Distressed properties are properties that have lower market values than the other houses in the immediate area due to the fact that they have been poorly maintained.
Finding the least desirable house in the most desirable neighborhood is the basic strategy for a fixer, according to most experts. After doing so, your next step is to determine whether or not if all the expenses involved in order to bring the property back up to its full potential market value is well within your rehab budget. Completely run-down houses that are in dire need of major structural repairs should be avoided. Seek out properties that only require cosmetic fixes.
