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Picking the Right Fixer Upper to Rehab
by William Bronchick, Esq.
A Fixer Upper business venture could very well be your way out of the 9-5 day job. Not only does it hold the possibility of earning more, it also gives you a good opportunity to manage your own time and meet new people. It can help you realize your hopes and dreams for you and your loved ones. It can also put you on the road to a successful and fruitful retirement.
Those that have built a thriving business as a result of fixer-uppers can testify to the fact that while it can be a little risky (especially at first) it can be well worth the sacrifice and the risk. It can make for a very attractive, well-earning business with a very good rate of return. The secret is in being thoroughly educated and having a good team of folks around you. A good mentor, experienced in the many ways of real estate investing, can be a critical factor in your ultimate success.
Any successful rehabber will tell you that the first secret to success is the ability to find good properties that are in very poor condition and otherwise not attractive to others; even other investors. Once these properties are fixed up, they can have the potential to sell quickly at a premium price. While some folks seemingly have an almost preternatural ability to locate such properties, there are ways that everyone can learn to sniff out good property buys. The type of marketing that you do, can also point you in the right direction to certain types of motivated sellers.
1. Distressed Homes– these are homes that aren’t structurally damaged, just unkempt and in need of cosmetic upkeep and updating. Some homeowners have good, sound homes but neglect to do simple things such as clean, paint, keep the landscaping in good order, keep the roof and exterior in good repair and so forth. These houses might be in such a condition because the owners are possibly lazy, but more often than not, it is likely that they are in dire financial straits and unable to maintain their home. If you spot such a house, you will do well to investigate more since you may have a good chance of snagging a diamond in the rough. Be aware, however, that many investors look for properties such as these and you may find it tough to get this kind of a property at the right price.
If you have a realtor that you are working with, ask them to give you listings that have been on the market for 60 days or more. Obviously, there are many reasons these homes haven’t sold but sometimes they can be had for a discounted price as the sellers tend to become more and more motivated to “wheel and deal” on price and terms the longer the property remains on the market- unsold.
2. Structural Problems and Mold – Structural problems and issues with mold tend to scare away even experienced investors. Sometimes these problems look nasty but can be remedied quickly and fairly economically. Most owners of properties of this nature are usually ready to sell at a deeply discounted price.
Make sure you know what you are dealing with. You will normally want to have a structural engineer look at any structural problems and a mold expert inspect for mold issues. Many times these problems tend to look much worse than they really are and can scare away other buyers including other investors.
We suggest that unless you have a mold or structural expert that you work with all the time and trust, that you get 2-3 estimates on a particular problem. We have found that the estimates of the work to be done can vary widely, for the same repairs!
3. Look at the Neighborhood – Do a little research on the neighborhood, in order to find out if the area is a developing area worthy of solid property prices and fewer days on market. Some properties, no matter how wonderful they may look like, won’t fetch a good price because they are located in bad neighborhoods, or are in areas that are underdeveloped.
Look around the neighborhood for signs of improvement in the last few years. Check out the amenities of the area, the community support, and the general impressions of other people living in the neighborhood.
Good investors are sometimes able to catch a good neighborhood on the rise, just about the time when property space is still cheap and right before the area experiences a boom in property prices. Other things to ask about are crime rates, accessibility, proximity to hospitals, schools, and other community fixtures.
If there are a lot of properties “For Sale” in a neighborhood, you may have difficulty selling a renovated property unless it is deeply discounted. If there are a lot of “For Rents” but not a lot of houses for sale, this might point you towards approaching some of the landlords that own these rentals, renovating the property and then selling it.
Even if an area isn’t ripe for farming at the present time, take time to occasionally revisit the area. Neighborhoods tend to change over time, so just because it’s not a great area to buy a distressed property now, it may be a great area in a few months or a year.
4. Look For Emerging Areas – If you have contacts, it would be nice to know the city or county government’s plans for the area. If the government plans to renovate or develop the area, create higher class amenities, expand businesses such as medical facilities and housing is still limited, then there could be a sudden surge in the prices in the area. This could be a good time to catch the wave before prices skyrocket.
You could also research plans for companies and consortiums to develop malls, transportation, health care and other facilities. These could radically affect the prices in the area. If you are able to anticipate this ahead of time then you are in line to make good money from this business. A good way to find out this information is to attend some of the local city and/or county public meetings.
5. Crime – Crime and community can a major factor in the choice of a home.
Make sure that the properties you put your sights on have fairly low crime rates. This means that the people in these areas should get along with each other and have a sense of “community”. This is one of several important factors that home buyers look for.
Understand, however, that first time home buyers are looking for reasonably priced housing and they may not find that in areas that have the very lowest crime rates. Find areas that have an acceptable crime rate by researching statistics on the numbers of home sales a particular neighborhood has. Also, drive and walk the area and ask the residents what their feelings are about the neighborhood.
6. Look for Other Investor Signs. – Looking in areas that have other investors’ bandit signs can provide opportunities from time to time. It will also give you a great idea of your competition. You may find that another investor that works the same area you are working, may buy properties but utilizes another type strategy, such as “buy and hold”.
In this scenario, you might be able to coexist peacefully and profitably. If you come across a property that isn’t priced low enough to rehab, it may make a potentially good buy and hold and you may be able to “assign” or wholesale that deal over to your competitor. They, in turn, may be able to do the same for you, should they run across a house that involves too much fix- up in order to make it a good rental and they, in turn, can do the same with you. Everybody wins!
Finally -Don’t forget to line up your financing! Depending on how your business is financed; buying and selling properties may involve either very little or a lot of your own money. One good way to leverage your interest is to employ the use of other people’s money. Although the purpose of this article isn’t to cover leverage and financing, suffice it to say that smart use of hard money, private lenders, credit partners or money partners or even seller financing can allow one to do more deals. You may give up some of your profit in return, but you gain the opportunity to complete more deals and possibly earn even more profit.
That’s it. Finding a property in the right area and then buying it at the right price can be a challenge. However, if this was easy- think of how many competitors you would have! You have to separate yourself from the other investors by being more knowledgeable, focused and persistent then they are. The time to get started is now- here’s to your success!
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