Real Estate Fixer Upper

Real estate fixer upper is ideal for someone who recognizes a gem in a prime location and willing to do some work on it. During my college years, I was in New York City. We had a friend of the family whom we get together during a holiday season like Thanksgiving. This guy had a part-time job as a house fixer (also had a primary job).

He would pick out a rundown home in an average NYC neighborhood and fix it; then he would sell it after it was fixed. I am sure that he was doing well because he lived in the Marine Park- Flatbush neighborhood. And each holiday season we met, he was always smiling.

“Job opportunities are expected to be excellent in the construction industry, especially for skilled trades workers, due to the large number of retirements of these workers anticipated over the next decade, as well as fewer people with the right education or experience entering the skilled trades.” From(http://www.bls.gov/oco/cg/cgs003.htm; Dept. of Labor – 11-27-07)

Skilled trades workers are electricians, plumbing guy, air-conditioning guys… As you can see, in 10 years, persons who are in this area will be in big demand.

Today in Florida, where I have a house (my mother and sister are still living there), it is already difficult to find a small home repairs person.

Real estate fixer upper is for someone who likes to fix things, somebody who may have some carpentry skills already. But the main thing is you must like it. Proper skills can be learned if you need to. I am very sure that almost everybody can paint an interior of a house using roller/brush. Most can do exterior paint that does not require climbing a latter. I have done both interior/exterior painting.

How about some wall papering? I have done that too. It’s more difficult than painting. With these two skills, you can save much of the cost in fixing houses.

Things we want to do;

          - Look for a best location

          - Look for a home that needs fixing

          - Fix it

          - Decorate It

          - Rent it

          - Sell it

Look For The Best Location

An old house in the best neighborhood is always worth looking at. Even the lot itself is worth considering.

Start from the local newspaper. Study the neighborhood you are aiming at and see what’s available. Then, drive by when you have a chance. This may take longer than the previous two strategies, but still viable.

So, spend some time looking for a gem is worth it.

Look For Home That Need Fixing

Not everybody will get lucky like my realtor friend above. But notice, the realtor concentrated on the best neighborhood in town.

Once, you have found a potential home you need to do some preliminary inspection first. Check the exterior. Is it in bad need of repairs ? Is it needing a new paint job? How is the exterior structure look ? Are the roof still looking solid ?

Jot all these down.

Next, check the interior. How are the wall ? Is the ceiling looks mouldy ?

How are the plumbling ? Can you flush the toilet ? How are the floor ?

You can get tons of books on how to visually inspect a home ? Remember our assumption is you are comfortable about fixing things already. This a must, otherwise you may not be enjoying this strategy.

Next, do some rough estimate on how much you need to spend fixing this home. It should not cost more than similar home in the area that need no fixing and on the market for sale. If the cost is reasonable less then go for it.

Before you actually go fo it, please make sure you do not over extended yourself financially. Go slow.

Next, decorate it

This is where you put in some trimmings. Something like a new kitchen stove, a new washing machine, a new curtain, some fancy windows here and there. These items will entice the prospective renters and buyers.

Getting/Qualifying The Tenant

This is a very important step. You must find the right tenant for your unit. Check out a guideline from this website, http://www.abanet.org/publiced/practical/rentfha_discriminate.html. Now, this is a tenant qualification guideline for the US. In other countries, the rule is different.

Please look at above carefully; you must have the right tenant for your unit, the kind that can pay rent regularly. So spend some times here. It is well worth it.

Advertise the unit in the local newspaper. I do it 10 days at a time; you get some discounts. Make sure you put some advantage points in the spot, something like near a subway, close to a park, right next door to a shopping mall…

The realtors may call you. Let them list your property. It’s worth it.

You may also tell them the best time to call you for any inquiry. The boss may frown upon these calls during the working hours. I usually ask them to call me in the evening.

Prepare a list of questions to ask them so you don’t forget, something like… Where do you work ? How long have you been in town ? Is this place just for you ?

Then when he comes to look at the unit and likes it and ready to take it you should ask him to fill out an application form. Here, you want more information like his position, salary, years working there, others. Remember, the monthly rent payments these days could be from $700 to $1000+ per months, so you want to make sure you get pay.

Lastly, if you still are not sure run a credit check or a criminal check on the guy. In my experiences I did not have to resort to these last two steps, However, I did use the previous steps regularly. An answer I had gotten was the person was a freelance writer for some magazines. To me, this is a risk and I told the realtor who brought this up, no.

You Need To Maintain The Unit Regularly

Once the tenant moves in, you must be able to take care all of the unit normal repairs. All homeowners are aware of this; even if you rent a home or condo you have to do some minor repairs.

I suggest you response within 24 hours after receiving an initial request. Then let him know when you can fix the problem. Sometimes you need to hire someone to do it to get it done. You must get it done.

By responding to your tenant promptly, you will have their goodwill and they will pay your rent on time.

In my experience, no tenants call you every month. So, you should not be spending too much time here. The unit preparation section should have taken care most of the problems already.

Getting A Buyer

You go through above process except instead of signing a lease contract, they would be signing a property purchase contract and a realtor or an attorney may be involved in getting the property transfer done. This process is done efficiently by a realtor/broker. In some states like New York, you need an attorney to process the transactions.

Some Paybacks

This is the same as the first strategy, buy a rental unit I presented.

- This is an income-producing asset and monthly rent payment could be from $500 to $1000+. Net monthly return will be less due to mortgage, expenses and taxes. Don’t forget, you could raise the rent each time you ‘re getting a new tenant. That is what I usually do.

- Equity build-up is an unseen profit; it keeps increasing gradually year to year. Check The Office of Federal Housing Enterprise Oversight site, http://www.ofheo.gov/, 11-27-07. Current average house price appreciation is about 3.2% per year.In certain states and areas, it could be more.

- Monthly mortgage reduction (from rent payment) increases the speed of equity build-up rapidly.

- So, in five years, your net equity in the property can be substantial. At that point, you could sell the property and buy a bigger unit or a multiple dwelling. Or keep the building and buy another one to rent out.

Using this strategy, you can see that you will have something substantial to fall back upon in 10 years; at least two rental units. This is a minimum. Once you have gotten the first rental unit, you would have a clearer idea of how many more you can handle.

Check out this reference,Quality “Shoe-String” Home Improvements by Tim Tscharke. You should save quite a bit in undertaking any improvement effort.

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