3 Situations Where It Pays to Buy a Fixer-Upper

It’s every home buyer’s worst nightmare: Finding a house within striking distance — of your price range and work— that quickly turns into a money pit.

On the flip side of the fixer-upper experience is someone like Jordan Brannon, a director of digital strategy in Spanaway, WA, near Tacoma. Although he’s sunk considerable money into his two-story, late-1990s home, he feels it was a good investment.

“It was about finding a home that we could add value to — and could purchase at a below-market rate,” he says of his 3,000-square-foot home. But there was one crucial caveat: “The fixer-upper work that we wanted to do, we had to be able to do.”

While that fixer-upper you’ve got your eye on may not be the steal you’re expecting — the average fixer-upper lists for just eight percent less than market value, according to a new analysis from Zillow Digs — it’s still a tempting prospect for many buyers.

Should you make a fixer-upper your next home? Here are three scenarios where the answer may be “Yes!”

When the upgrades are simple

Knowing that hiring contractors was out of the question — in part because Brannon works from home — Brannon and his wife focused on finding a home they could revamp themselves.

This meant forgoing homes with any foundation, electrical, or plumbing issues, and eyeing properties where cosmetic upgrades were the name of the game.

This isn’t to say the couple didn’t put in a lot of hard work; the project took nearly three months.

“We basically gutted the first floor down to drywall — did a full repaint, with all new trim; replaced the kitchen cabinets and countertops, and added new light fixtures and door handles,” Brannon says. New toilets and sinks are recent installments.

“The home looks 10 years younger, and feels cleaner and brighter,” Brannon remarks. “We’re more comfortable living in it, and I’m confident we’ve made an improvement in the home’s resale value.”

Combined estimates from contractors put the value of the improvements around $55,000, minus one bathroom. Altogether, Brannon says the couple spent about $15,000 on the work, plus 240 hours in labor (yes, he’s been tracking). For Brannon, it was a worthwhile endeavor.

When the numbers add up

“Fixer uppers [only] make sense as long as the numbers pencil out,” says George Vanderploeg, a luxury real estate broker with Douglas Elliman in New York. In other words, “Is the money that I have to put into it going to make the property worth at least that much when I do it?”

In general, people will price a property based on what others sell for, Vanderploeg explains. “If I were just to pick a block in Manhattan, say on 63rd Street, between Lexington and Third Avenue, the renovated townhouses there might sell for $3,000 per square foot,” he continues. “An un-renovated townhouse might sell for maybe $2,000 per square foot. If you have the money to put in, it may all work out.”

Of course, for many home buyers, especially those without a big — or any— renovations budget, this is easier said than done.

When the timing is right

Every municipality has a building code, says Vanderploeg, and the work that you do on the home must fall within legal bounds. “An architect usually will supervise the work, and then at the end of the process, they’ll sign off on it,” he says. However, this can be time-consuming.

You can also run into hurdles if your contractor falls behind schedule, has trouble staying on budget, or is just unreliable. “Where people go wrong sometimes is having a bad contractor,” says Vanderploeg.

If you’re unable to live in the home or get stuck waiting for permits, you could also find yourself in a bind. “Sometimes we have to find people a place to live for six months to a year while they’re waiting for something to be finished,” Vanderploeg adds.

For these reasons alone, homeowners need to be clear-eyed about the renovation process.

Remember, committing to upgrade a fixer-upper is more than a labor of love — it requires a time and financial commitment. But if you’re willing to go all in, think about the bragging rights!

Source: Zillow Porchlight, Jill Krasny
http://www.zillow.com/blog/when-to-buy-a-fixer-upper-203311/

How To Score A Great Deal On Real Estate

With many real estate markets rebounding or thriving, foreclosure rates way down, and short sales all but gone in most areas, can you still find a bargain when buying a home? Yes, but you'll have to be sneaky, creative, diligent, or all of the above.

Pay cash

You've got a couple hundred K lying around, right? It may sound ludicrous to some, but buying a house all cash is a growing trend, and one that can save you money upfront and down the line. Sellers may be more willing to negotiate on the home price for a cash purchase. A shorter home search and escrow period can save you money on carrying costs in your current home. And, obviously, not paying a mortgage can save you hundreds of thousands of dollars in interest.

Go to an auction

While foreclosures are down across the country, some homes still end up going through the process and then ending up available at auction. That means you can bid in person (or online if that option is available) in an attempt to get a bargain home. Take note that you'll probably be in competition with investors and home flippers, and many auctions require an all-cash payment, which makes them difficult to purchase for the average person. You'll also want to keep in mind that many auction homes are in poor condition - be sure to check them out before bidding so you don't end up with a money pit.



Buy in a developing neighborhood

If you're willing to compromise on location, you might be able to find a great deal. And, you might even get help with the purchase.

"Some towns offer transitional and developing neighborhood homes at very steep discounts," said Fortune Builders. "You may have to agree to live in the house for a certain number of years or agree to do a good amount of repairs, however this is definitely a program to search for in the area you're looking to buy.

Buy a fixer upper

Have a way with a hammer and a desire to make your place your own? Buy a project house. You'll save a ton of money and you'll be able to redo it in your style instead of living with someone else's.  Some loans might even help pay for your renovation as part of the home purchase.

Rent to own

Is your less-than-excellent credit and/or unsubstantial down payment making it difficult to get a good loan? Maybe you're having trouble competing with other buyers in a competitive market. Both of these scenarios could end up with you paying more than you want to. But you may be able to get a great deal and ease into the market with a rent-to-own or lease option arrangement.

"Whether the issue is a lack of down payment, a little too much debt, or a lingering ding on their credit report, sometimes buyers just have to wait while they work on their credit profile or save more money before they can buy a home," said Realtor.com. "In such a case, a rent-to-own or lease-to-own arrangement can sometimes be a solution."

The advantages of renting to own are the ability to lock in a purchase price from the beginning of the agreement, and saving toward a down payment - “During that time, the renters usually pay an above-market rent, with the excess rent credited toward a down payment when the contract ends,” said Realtor.com - and work on improving their credit so at the end of the term, they are able to qualify for a great rate.



Buy in the ‘burbs

People don't move to the suburbs because they want to be an hour and a half (each way) from work. It's a tradeoff for affordability, plus a crack at a family-friendly atmosphere and quality public schools.

For $500,000 ($499,990, to be exact), you could buy this brand-new home in the family friendly suburb of Santa Clarita. You'll have to deal with a long commute to…well, pretty much anywhere, but, in return, you'll have great space and a home designed just for you with all the features and finishes you want that no one has ever lived in. For the same money, you can buy this tiny condo a few blocks from the beach in Santa Monica. It's only 855 square feet and one bedroom, but think of all that time you'll save not being in the car!

That's the thing about location. It's give and take. While you might be able to find something in the location you really want for the money you have, it may not be what you want.

Source: RealtyTimes, Jaymi Naciri
http://realtytimes.com/consumeradvice/buyersadvice1/item/43798-20160414-how-to-score-a-great-deal-on-real-estate

The 6 Worst Homes for First-Time Buyers

Deciding to buy your first home is a little scary. Looking for a home is anxiety-inducing. But actually making an offer? That’s a whole different level of panic. Are you choosing the right one? What if you buy this home and the perfect place comes on the market a week later? What if you end up hating the place in a year?

Unfortunately, there isn’t a one-size-fits-all formula for first homes. (If there were, we’d tell you.) And no, we can’t totally destress the process (buying a house is a big deal, after all). But we can help you avoid the biggest mistakes. And, as it turns out, some homes just aren’t right for the average first-time buyer. Go ahead and take a look.

1. The one that’s a little too ‘cozy’

You may not have children when you buy your first house. You may not even be planning on children. But those plans could change in the next five to 10 years, and that tiny two-bedroom historic bungalow you’ve been eyeing may go from just right to clown-car small.

“If you are recently married and plan to start a family, do not buy a two-bedroom home. Unless you bunk the kids together, you will be moving once the second child comes along,” says Seth Lejeune, a Realtor® with Berkshire Hathaway HomeServices in Collegeville, PA. “Three is generally a good average. If you end up staying there longer than expected, you can start a family and still be comfortable.”

2. The bloater

On the flip side, you shouldn’t just get the biggest house you can qualify for, either. Five bedrooms might make sense for you in the future, but if it’s just you and your partner now, you probably won’t need those other four bedrooms for years. In the meantime, you’ll be carrying a much larger mortgage than you need—or possibly can handle.

“There’s almost nothing worse than buying more house than you need and having a reminder come in the mail every month as you scrounge to make payments,” Lejeune says.

3. The money pit

You might be tempted to buy an older fixer-upper—after all, you’ve watched so much HGTV you could give Bob Vila a run for his money—but be careful how much rehab you take on.

If the home needs one or two biggish projects and a handful of small weekend jobs to get into perfect condition, you might come out ahead. But if you can spot a dozen problem areas now, you may end up going broke trying to repair that place.

Instead, opt for a fixer-upper with an end in sight.

“I generally advise people to keep it simple—like kitchens and bath upgrades,” Lejeune says.

4. The weekend stealer

Is the front lawn a tropical garden? Does the house have a swimming pool out back? Is there a huge vegetable garden that needs tending? Those features might look great now, but do you really want to spend every weekend maintaining your home?

“Pools, hot tubs, elaborate landscaping, etc. are great in theory, but all require maintenance,” Lejeune says.

If you’re not up for the challenge, move along.

5. The dream crusher

In an ideal world, you’ll live in your first home for a while, maybe make a few improvements, and sell it for a profit later so you can upgrade to an even more awesome pad.

But that doesn’t mean you should look at every home for its investment potential.

Sometimes your tireless home improvements won’t mean much to the next buyer. And sometimes that home simply isn’t going to go up in price, no matter what improvements you make.

“If you make a row home in the worst part of the city into the Taj Mahal, you’re never gonna get that money back,” Lejeune says.

If your only reason for making an offer is what you might get out of it after you sell it, consider the market very, very carefully before you make the plunge.

6. The doorbuster

If you’ve found a really good deal on a home, go ahead and pat yourself on the back for being a regular real estate pro. But then stop and ask yourself why the deal’s so great. Is the location a bit gritty? You might save big bucks in the beginning, but there also might be big problems if and when you try to sell the home later on.

“I would advise that you pick [a locale] with a strong school district and a fiscally sound municipality,” Lejeune says.

Even if you don’t plan on having children, or you don’t care if a neighborhood is a little rough around the edges, future buyers might—and that means you may be forced to offer the same discount you got when you bought the house. And nobody wants their decisions as a first-time buyer to come back and haunt them as a first-time seller.

Source: Realtor.com, Angela Colley
http://www.realtor.com/advice/buy/worst-homes-for-first-time-buyers/?iid=rdc_news_hp_carousel_theLatest

Before You Buy a Fixer-Upper, Read This

Yes, my husband and I did it: We bought a fixer-upper, and it nearly did us in. It was Brooklyn, NY, in 2008. I remember walking to the place for the first time and seeing the back seat of a van on cinder blocks being used as a couch—and quickly looked past that eyesore. This could be a great space once it was renovated, I thought. The light was abundant, the space ample and flexible, and its Park Slope neighborhood was about to bloom.

Six months into the renovations, our contractor told us: “In hindsight, we should have knocked this down and started from scratch. It would have been cheaper.” Ah, blessed hindsight.

We wanted to keep you from getting sucked into a money pit of your own. For expert advice, we turned to Cathy Baumbusch, a Realtor® in Washington, DC, who told us how to master the art of buying a fixer-upper.

1. Know that some flaws can be fixed

Fixer-uppers generally fall into two categories: total wreck and ugly house.

“An ugly house is not architecturally appealing: Its paint is chipping away, the yard is unkempt, inside it may smell bad,” says Baumbusch. In short, everything about it needs freshening up.

But if these are the kinds of flaws you’re dealing with, take heart: They’re merely cosmetic, and they’re easy to fix. Painting is the easiest task that you can do yourself. Just don’t cut corners—buy all the right equipment (use the tape!) and paint correctly, with the right number of coats. It’s extra work, but it pays off in the end. Even if you hire a painter, it won’t cost as much as redoing the bathroom. You could also refinish the floors yourself, although it involves renting a machine.

2. Then again, other flaws cost a bundle

On the other hand, some blemishes may initially slide under your radar—but eventually make a big impression on your wallet.

“Problems with the foundation, structure, roofing, and siding can be expensive to fix,” says Baumbusch—as can major replacements with sewage, septic, and heating, ventilating, and air-conditioning systems. Replacing decks and driveways can also be costly. Sometimes environmental problems such as a wet basement or mold can be mitigated, but treatments are not always successful. In some houses, it can just be impossible to solve a bad mold problem.

“I once viewed a property for sale where the mold was so bad, it was difficult to breathe,” says Baumbusch. “It was everywhere, and the property management company was doing nothing to stop it. That home would probably be better off completely gutted or razed altogether.”

3. Ballpark your renovation costs

Hire a structural engineer to evaluate the home before you buy—but before you even get there, do your research. There are a lot of repair estimators out there, so ask your friends and co-workers if they’ve done repairs lately and could tell you how much they cost. That way, you can quickly ascertain whether the repairs would fall within your budget. Draw up a reference sheet for renovation costs such as roof, foundation, HVAC, and windows. This will help you to determine a viable offer price.

4. Ask for a discount—gently

Now on to the real upside of buying a fixer-upper: major savings! These houses can go for as little as 60% to 80% of the original asking price, says Baumbusch. This is especially true if the home has been sitting on the market for a while, or if you’re able to offer cash upfront.

Of course, even if you and everyone within eyeball range know that this house is in shambles, that doesn’t mean the sellers know that, or want to hear it. To avoid insulting them, start out by saying you love their home, but you (or your engineer, inspector, or friend) have noticed some issues that will take time and money to fix. Then subtract that sum from their asking price, and you don’t have to stop there.

If the renovations will keep you from living (or living comfortably) in your home, it’s also customary to tack on an extra fee for what Realtors call “the hassle factor,” which can be estimated by the amount of time and money you’d spend living elsewhere while the renovations happen.

The bottom line: The more you break down your expenses, the more sense your offer will make to the sellers, who will hopefully play ball.

5. Get the right kind of loan

A home requiring major renovations can qualify for a special type of financing called a renovation loan. And there are different types: A 203(k) loan, recently rising in popularity, is insured by the Federal Housing Administration. Since these loans are backed by the government, lenders are fine accepting lower interest rates than what would be required by your typical home renovation loan; they’re also open to people with less-than-stellar credit. The downside? There’s a limit to how much you can borrow (anywhere from $271,000 to $729,750, depending on the price of property in your area). Be sure to explore all your options with your Realtor or other qualified experts.

In the case of our Brooklyn home, we transformed a disheveled hovel into a beautiful home. It took a very long time and a lot of money. It just might have been nice to know what we were actually getting into to try to avoid the panic that came with every change order.

So, if you’re thinking about tackling a fixer-upper, trust me—it helps to know what you’re in for first.

Source: Realtor.com, Rosie Amodio
http://www.realtor.com/advice/buy/how-to-buy-a-fixer-upper/