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The oft heard phrase "Buyer Beware" is never more appropriate than when considering the purchase of a fixer-upper.You really need to know exactly what you’re getting into before buying.


It’s commonly believed that fixer-upper properties represent easy money that is ripe for the taking - that you can buy it, do a little work on it in your spare time, and then resell quickly for a large profit. Usually, this simply isn't the case. Although, with proper planning and foresight, good profits can be made by buying "distressed" properties at less than market value, making appropriate improvements and repairs, and then reselling. And for many first time buyers who intend to live in the house while working on it, buying a fixer-upper can be the very best option. It’s less risky buying a fixer-upper when you can live in the house while fixing it. And of course, by living in the house for at least 24 months you should be able to avoid paying regular income taxes on the profits.

 

The most important thing to know before making a decision on such a purchase is what needs to be fixed. Any time you are spending money on improving a home with the notion of selling it later, strive to spend your money on things that buyers can easily see. Things like new paint and removing trash from the property cost little but have instant impact on curb appeal. Houses that have only cosmetic problems like peeling paint, a trashy yard, bad carpet or wallpaper are the best bet. This is especially true for the first time buyer looking to live in the house for a while before reselling. Fixing and cleaning cosmetic issues is fairly easy and inexpensive. It virtually always gives a good return on investment, particularly when you can do the work yourself. Kitchen and bathroom remodeling usually pays a nice return. Don’t be afraid of buying a fixer-upper in need of this kind of repair. Properties with structural damage, or a floor plan that requires major work to remedy, usually can’t be "fixed up" at a profit.   

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Always have an inspection for hidden damage performed by a home inspector or construction professional before buying a fixer-upper. Make sure that satisfactory completion of such inspections are a condition of purchase in any contract you sign. Then be sure to negotiate to try and get the seller to pay for all or part of the cost of needed repairs uncovered by the inspection. Often, sellers will be willing to lower the sales price to sell the home "as is" instead of paying for the repairs.

 

Be careful that you don’t over pay. Especially if you plan to resell quickly, paying too much up front can doom your plans for quick profit. Research the market for reselling and have an exit plan for selling the house in place before making an offer.

 

Looking for an attractive mortgage on a "fixer-upper"?  The bank may not be in love with your choice of property and may not lend a high percentage of the purchase price. Have the cash available for more down payment than you expected and be prepared to show funds available for the remodeling.

 

I personally have bought homes in the Blowing Rock and Boone areas that ranged from minor updating needs to those that were literally uninhabitable.  Some required extensive and expensive remodeling. One house was torn down. Others needed new baths and kitchens and updated decor. And, yes, even with all our experience, we still had a few surprises when we started the tear out. 

 

Because our location in the mountains of North Carolina is so desirable, even "fixer-uppers" can cost more to purchase than you might expect.  Before putting money into a house purchase that you know needs extensive work, decide if you are "professional enough" to do the work right the first time.  I have seen many a home remodeled by the owner which suffered from bad paint jobs, ill-conceived design, poorly executed carpentry and remodeled with mis-matched salvage materials which showed poorly to the buyers and did not sell for a long time. 

 

If your Do-It-Yourself job satisfies you, congratulations!  DIY jobs can be expertly completed. You have turned a poorly-conditioned property into an enjoyable and perhaps, profitable, one. But, don't expect your DIY(which you love) to appeal to potential buyers. There are many choices in the market. With the current low interest rates, today's buyer will bypass poorly-executed remodeling and pay more for new or recent construction.

 

I have seen creative homeowners take a property from "zero to hero", thereby increasing the property value(and their eventual potential profit) significantly.  The important factor here is a homeowner with vision (and sufficient funds) and a savvy contractor who can improve upon the homeowners' initial wishes for the remodeling.

 

The key, as always, is choosing the right location.