• I’m handy but not a professional. If you are good with a paint brush and a hammer but don’t know the difference between a GFCI outlet and a voltage meter, you probably should carefully evaluate the skills needed to make that fixer-upper habitable. If it’s just cosmetic, then it should be as easy as inviting some friends over for a paint party and perhaps installing new carpeting or cleaning. But if the repairs required are significant and involve drywall, electrical, plumbing, roofing, or the like, you should be prepared to shell out some big bucks for a professional to complete the project. Know your limitations or you are liable to get stuck with an eye sore that no one wants to visit.
• Is it in such disrepair that you won’t be able to get mortgage financing? These days, your options for rehab properties are all cash or perhaps a 203K FHA loan. A 203K loan allows you to get bids for repairs required and submit them to the lender for approval. The obvious advantage is that you can borrow the money for the purchase and the repairs in one loan at competitive rates. However, these types of loans aren’t usually attractive to the seller of a distressed property as the loans normally take longer to close and there will be requirements associated with the underwriting of the loan that make it less desirable.
• Unless you know specifics about the property, you may be opening Pandora’s Box. Many foreclosure or distress properties that are being sold as a “deal” are also being sold “as-is”. What does this mean? Normally, it means that any information you find from a home inspection is for informational purposes only and the seller will make NO repairs whatsoever. Those auction homes that are sold to the highest bidder usually allow for a short period of time prior to the auction where the property can be inspected and reviewed thoroughly before making an offer. But no matter how thorough the inspection, you just don’t normally know who lived in the home or how it was maintained previously – if at all. A termite inspection is just the starting point. Finding out as much about the property as possible will help you in determining how extensive the repairs are likely to be.
• Know the neighborhood before you buy! It’s all well and good to get a great price on a home but if the distressed home is also in a distressed or high crime area, are you really making an investment in something you can either enjoy or make a profit on down the road? This is completely subjective and depends on your needs and wants but do your homework about the area because making that home a showplace when no one else in the community is doing the same, will likely cut the return on your investment substantially and no amount of “fixing up” will really make it a profitable investment.
If you think you can tackle a fixer upper on your own, then remember to know how you’re going to finance it, know the condition of the home, and know the neighborhood before you jump in!