You've decided to buy a home and you're looking at a fixer-upper. Western Washington from Bellingham to Vancouver has a variety of great bargains, killer deals and perfect investment homes but, finding that perfect home is really the key to getting a good deal and a great rate of return.
Whether you are planning on fixing up the home to live in it, flipping it for fast cash or looking for monthly cash flow from a rental unit, finding and purchasing the right home takes knowledge, skill and education. Understanding the process, knowing the market and having a great team behind you all add up to a successful purchase and long-term successful investment future. At Better Properties we want to inform all of our homebuyers about the market, the area and match them up with the right real estate agent for the area in which they want to buy that specializes in real estate investments. If you're considering buying a fixer-upper here are the very best tips that we can provide for you to make the best decision.
You probably already know the answer to this question but you'll need to decide what you're using the property for; an investment rental property for cash flow income, fixing it up, flipping it and selling it for a profit, or fixing it up and using it as your primary residency.
So many people cannot look past the cosmetics of a home to really see the structural integrity that the property has. Try to look past paint, flooring, wall coloring and furnishings to really look at the bones of the home. Is the layout appropriate? Do you like the design of the home itself? Is it in a good location etc.
Asbestos and lead-based paint are two of the top things that many fixer-upper's have because they were built prior to 1979. If you're concerned about this make sure you ask your real estate agent or your home inspector if these items are present. If they need to be removed it could be extremely costly and may not be worth your time and money.
Electricity and plumbing are two of the most expensive items that may need to be updated on a fixer-upper home. Talk to your real estate agent and your inspector before making any big decisions on major upgrades.
Whether you are renting, flipping it or living in it permanently, you want to make sure that the home has good resell value. Is it in a good school district? Close to freeways or is it too loud where the home is? Take a look at location, crime rates, school districts and its close proximity to modern amenities and commerce. This will serve you well when it comes time to rent or sell.
Older homes may have post and pillar foundations that may be okay but they also could be in need of replacing. Take a look at the insulation, moisture barrier and integrity of the concrete foundation to make sure that you won't have to be moving the entire house or replacing foundation, which is extremely costly.
Replacing a window here or there were updating a window that may have lost its seal is one thing; replacing all the windows in the house can be thousands of dollars. Take a look at the frame, the seal and attract and make sure there's enough insulation around the windows for energy efficiency.
Roofs can be anywhere from $3000-$10,000 to replace and more than likely many fixer-upper's will need this item. Take a look at the roof and find out what shape it's in and how much work you'll need to do.
Many homes in Washington state do not have air-conditioning but they should all have a heat source of some type. Wood-burning fireplaces and baseboard heat can be the most temperamental and may heat up in one room and not another. Weigh the costs of replacing it with a furnace or a heat pump which could be thousands of dollars.
Many a marriage has broken up over a fixer-upper remodel. Are you emotionally ready to handle over budgets, over time and headaches? In the end it can be well worth it but during the project you will be dealing with a lot of parties involved not just in the purchase and sale but in contractors, building permits and zoning rules. Be mentally prepared to take on the project and you'll be 10 steps ahead of your competition.
You want to avoid falling into a money pit. If you buy a home because you love the location but then after a while you realize that there's more money going into this project then you'll ever get out, probably made a mistake. Avoid this from the beginning by working with professionals that know the area and understanding what you're getting into before you finalize it.
Understand what you can do yourself and what you'll need to hire a professional for. If you can do a lot of the maintenance, repairs, renovations and upkeep's yourself you can save a lot of money but if you're not well-versed in home repairs and you need to hire out a lot of the work it may not be worth it to get something that needs a ton of renovations.
Get the total cost of all repairs including permit before making an offer. This is a hard thing to do especially in a tough market. However, you can get a qualified and knowledgeable instructor to do a walk-through of the fixer-upper house to identify what needs to be done before you make an offer.
Double checked the pricing for required structural work. If there's some serious foundation issues that need to be addressed you want to price those out before finalizing anything. Get a written estimate on all work prior to finalizing the transaction so you know what things will cost once you buy.
Understand financing costs. You may need to use a home equity or home improvement loan for a fixer-upper but you want to make sure that you can recoup these costs when you purchase and of course price out all of the repairs.
Understanding the market is a crucial part to buying a fixer-upper. Your real estate agent will help you decide the best time to pull the trigger but knowing the market even the micromarkets of individual neighborhoods, is a vital step to making the right decision and not overpaying for a home. Is it a buyers market for sellers market? Are there neighborhoods that are doing better than others? Look for the lowest-priced house in the nicest neighborhood and you can naturally bring up the equity and value of the home greatly simply by doing some simple cosmetic repairs. Will you have competition? Are there several investors looking in a particular area? Will you do if you have to make multiple offers or an escalation clause paying for the home just to get it? All of these things take a lot of time and individual cities and neighborhoods can change from place to place. Talk to your agent, let them know what you're looking for and the best time to buy.
The home inspection is probably the single most important contingency you will have when buying a fixer-upper. Waving the home inspection only sets you up for a nightmare of a money pit. Of course, chances are that you could get a great home but neglecting that $300 home inspection is just not worth it. You want to calculate your offer with inspection contingencies.
Take the fair market value of the property and subtract from this number the total in upgrades, permits and repair costs to find out if buying the property is worth it. If you're buying from a homeowner instead of a vague the home inspection contingency will allow you to go back to the seller and request the seller to make repairs, reduce the price or perhaps offer cash at closing to pay for the needed repairs.
A seller can reject all necessary repairs and it could terminate the transaction but you are welcome to do them after you finalize the transaction should you choose to.
Most rental investments will require 20% down on the purchase of the home. If you are buying the house as your primary residency with an FHA or VA loan option the house will need to pass certain structural integrity requirements in order to qualify. The lenders want to make sure that if you default on the loan, the property is at least sellable. If the house needs too much work, the lender may be out money.
If you are buying the home with a conventional loan, 10-20% is usually required depending on the terms and if you are planning on renting it out you may need more. Each home and financing situation is unique so talk to your agent about your plans and your lender about your goals in order to find a plan that works for your needs.
So, to recap - location, stability, cosmetics, financing and knowledge - OH and a great team behind you. Call us today to get in touch with the right agent for your area and the right lender for your needs. We look forward to answering any questions you may have about buying a fixer upper in Western Washington.