One way to
make money in real estate is to buy a property that no one else wants and turn
it into a property that's in high demand. Although the plan is simple, finding
the right property in the right location and then buying it at the right price
takes time, patience and expertise.
property can be a real challenge, particularly if you're looking in a market
that's low on inventory. When the listing inventory is low, and buyer demand is
high, you can find yourself competing even for a run-down fixer-upper.
combination of a low asking price and perceived potential is a big draw. You
need to guard against paying too much in this situation.
Years ago, a
developer bought a property that was sold to settle the estate of the deceased
owner. The house was in a wonderful location and had a spectacular view, but it
needed a lot of work. The developer ended up in competition with another buyer
and paid way over the asking price.
He put the
property back on the market a year later after he'd completed the renovations.
During that time, the market changed from a seller's to a buyer's market. The
developer had trouble selling the property. After calculating the money
invested and the cost of carrying the property, the developer actually lost
conditions have a big effect on how much money you'll make on a fixer project.
The ideal time to buy is at the end of a down cycle in the market, when there
are few buyers and a lot of listings. This is when you might actually find a
good deal. If the market turns upward while you're renovating the property,
you'll realize appreciation in addition to the added value you create through
fixer-upper can be a challenge. If the deferred maintenance is obvious, a
lender might not be willing to lend unless some of the problems are corrected
before the loan is funded.
HUNTING TIP: Major fixers are best left to buyers who have experience in
contracting and renovation. However, cosmetic fixers can offer great
opportunities for buyers who are interested in increasing their net worth
through renovation. A cosmetic fixer is a listing that lacks appeal, but that's
In order to
maximize the return on your investment, make sure that the improvements you
make to the property are in sync with current buyer preferences in your area.
Your real estate agent may be able to provide you with this information. You
may want to consult with a local designer to find out which finishes and colors
diving into a rehab project, become an expert on your local real estate market.
You need to know local values in order to keep from over-improving for the
fix-up strategy that works well for some buyers. Buy a cosmetic fixer and
occupy it. Buyers who occupy the property get a better interest rate on their
mortgage than they would if they didn't occupy the property. This will save you
Fix up the
property and sell it if the market is good when you finish the project. If it's
not, enjoy living in the property and sell when the market is right. The
current tax law allows homeowners $250,000 of tax -free gain when they sell ($500,000
for married couples who file jointly).
Tax-wise, you can repeat this strategy once every two years if you can find
good projects and can stand living in a construction zone.
is author of "House Hunting, The Take-Along Workbook for Home
Buyers", and "Starting Out, The Complete Home Buyer's Guide,"
Copyright 2003 Dian Hymer
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