Buying a Fixer-uppers 

You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area.  

Ascertaining whether the property you’re interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost.   

Some experts suggest that buyers who take this route try to find a “cosmetic fixer” that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it.   

The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one’s rehab budget.   

How do you find out the value of a troubled property? 

Buyers considering a foreclosure property should obtain as much information as possible from the lender about the range of bids being sought.  

It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property’s condition.   

It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder’s and assessor’s offices, or through Internet sites specializing in property records.   

Are there programs for fixer-uppers?  

If you need home loan to buy a “fixer-upper” and remodel it, look at the U.S. Department of Housing and Urban Development’s Section 203(K) loan program. The program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.  

A 203(K) loan is usually done as a combination loan to purchase a “fixer-upper” property “as is” and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.   

Investors must put 15 percent down while owner-occupants are required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements.   

Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.   

Return on remodeling jobs 

Remodeling magazine produces an annual “Cost vs. Value Report” that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road.   

Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.   

Government programs for rehab 

The U.S. Department of Housing and Urban Development’s Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.   

The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property “as is” and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.   

Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.   

For a list of participating lenders, call HUD at (202) 708-2720.   

If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.   

Another program is the Federal 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.

Resources on home improvement

If you’re getting ready to embark on a home improvement project involving contracting help, “Ready, Set, Build: A Consumer’s Guide to Home Improvement Planning Contracts” lays out a road map for selecting the right contractor, obtaining competitive bids up to what to include in a contract. There also is information on consumer rights, liens and financing.   

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.

Tax breaks for historic rehab

Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.   

The tax code does not allow deductions for the demolition or significant alternation of a historic structure.   

Resources:  

• National Trust for Historic Preservation, Washington, D.C.; (202) 588-6000.

Trustee sales

Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice.   

In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee’s deed.   

Get-rich-quick real estate schemes 

Most real estate experts say there is no such thing as getting rich quick in real estate. But there are no end of get-rich-quick programs presented to the public as alternative methods of buying real estate. Some are reputable while others depend on your financial circumstances to work. A handful are simply scams.   

Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly.   

Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.