Many people, while browsing houses for sale in real estate ads, ignore the cheap houses labeled ‘Fixer-Uppers’ or ‘Handyman Specials’. These are properties that have been neglected and would therefore mean additional work for a new owner. While this may be true, smart buyers are able to translate this into profit.
Investing in handyman specials is not a short cut to easy money. However, it presents a real opportunity for making a good profit from rehabbing such cheap homes. There is also the likelihood of losing money. Therefore, you need to do your homework well and know what exactly you are buying and what kind of profit you can expect.
The following are some things to consider when evaluating a potential investment property.
Evaluate the selling price
Use a professional appraiser or realtor to determine a reasonable selling price based on both the neighborhood and the market. You could buy an investment property and do a great renovation. However, if the neighborhood cannot appeal to the kind of buyer you are targeting, your property might never sell. If home prices are dropping and the market is declining, this will also influence your selling price.
Get the property inspected
Hire a qualified house inspector to carry out a detailed inspection of the home. Find out what need to be fixed and what can be retained as it is. Will you mainly focus on cosmetic repairs, or does the home require costly repairs on the foundation or ripping out plumbing? Evaluate which improvements you can comfortably handle by yourself and which ones will need professional attention. When calculating costs, you need to obtain at least three estimates. This is because prices can vary from one place to another. Establish if a building permit is needed, and add the cost to your budget. Find out which renovations would increase the home’s resale value, and avoid the ones which will only improve your bottom line.
Most handyman specials are the result of distress sales due to situations such as bankruptcy and divorce. Such homeowners would want to dispose of their foreclosure homes fast. This sense of urgency could work to your benefit. You might be in a position to negotiate a much lower selling price by showing willingness to close quickly on the house.
Another option would be to buy new and hire a builder to complete the outside of your investment property. You can then complete the inside, thus making a profit from the finishing work. Quite often, you could sell off the property before building. The down payment will then subsidize the interior renovation.
Do a cost analysis
Whether renovating or building new, you will need to carry out a cost analysis to establish whether your investment will yield the expected profits. Calculate the buying and selling costs, legal fees, closing fees, taxes, commissions, repairs, interest on loans, and miscellaneous fees. Take this total and subtract it from the expected sales price. You will then be able to determine if the final figure is worth your effort.
Investing in handyman specials is a relatively easy process which can result in significant profits.