Fixer Uppers
Thursday, November 16th, 2006
Another strategy used by real estate investors, is to buy run-down property, fix it up, and then resell it at a handsome profit. In some cases, the approach varies - the idea is to buy a property significantly below value, and live in it after renovation; thereby getting a home that’s much better than what you could otherwise afford.
The first thing to remember here is that estimates of value vary. Aesthetic factors such as a poorly maintained garden or yard, peeling wallpaper and paint, a poor layout etc. can and do bring down the value of a property compared to others in the same location. The real question is whether the markdown is much more than the cost to bring it back up to a good condition.
The next element, is how you’re going to get the work done. If you’re good with your hands, enjoy refurbishing / reconstructing, and can manage most of the work by yourself, you could do it fairly cheaply. But if you are going to contract it out, think again. The biggest component of costs is the labor required; and skilled labor doesn’t come cheap.
The other, is how you’re going to finance the renovation. Just as buyers may discount the value of the property, lenders may, too. If you’re looking to have the purchase with a mortgage, and then a renovation loan from the same or another lender, make sure that you understand THEIR criteria and evaluation process.
The last thing you want, is to be stuck with a run-down property which you can’t renovate because you haven’t got the money.
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