2017 has seen some strong gains in real estate values. We’re currently just below pre-recession peak pricing. So what’s a home buyer to do? Have you considered a fixer?
It would be worthwhile to do a little research regarding the costs involved in upgrading a fixer home. Typical items needed are new flooring, drywall repairs, new roof or roof repairs. For the kitchen, new cabinets, appliances, sink. For the baths, new tub, sink, shower and tile work. Other items may include new electrical panel, new windows and doors or possibly a new water heater, or central AC unit. It's important that you hire a trusted property inspector and can create a line by line list of items for all repairs that come up. Then you want to make a list of items that are urgent must-haves, and items that can be done later on.
In many neighborhood throughout Los Angeles, it’s not uncommon to purchase a fixer for around $100,000 below the market value of its average condition counterpart. In this case, if you can limit your repairs to around $40,000 for example, then by the time the repairs have been completed, you'd have approximately $60,000 worth of equity in your home. The key is to watch the numbers very closely, and hire an Agent and an Inspector that are highly qualified and willing to commit time to you. (If an Agent is the “top sales pro” in your area, but cannot even give you 5 minutes over the phone, that's probably not the right person to help you with your project.)
The FHA 203k rehab loan is a great way to obtain financing at the time of purchasing a home. Only owner occupied homes qualify for this type of financing, but the money available is up to 110% of after improved value. For a well-planned project, that should be plenty of leeway to provide you all the money needed to complete your repairs. Other rehab loans out there now include the Fannie Mae HomeStyle Renovation Mortgage and the Freddie Mac Construction Conversion and Renovation Mortgage. You should check rate pricing and terms with a qualified Loan Officer to see which loan program is right for you.
A great place to find a fixer might be to look at a few for sale by owner listings. Although a good number of these sellers have a tendency to over value their homes, many of them are just looking to get their place sold and might be willing to take a price reduction if they don’t have to pay a listing commission. This is especially true if their home has been listed for several days. Just be sure to watch the numbers and get a reliable appraisal completed prior to closing.
Now that banks are becoming more lenient about their lending guidelines, there’s plenty of money available out there. If you're ready to roll up your sleeves and oversee turning a fixer into your dream home, the payoff might be just around the corner.