Where
are fixer-uppers found?
So-called "diamonds
in the rough" -- distressed properties or fixer-uppers -- can be
found in most communities, even the wealthier neighborhoods. A distressed
property is one that has been poorly maintained and has a lower market
value than other houses in the immediate area.
Ascertaining whether a property is indeed a "diamond in the rough"
is a process that takes some work. A buyer must figure what the average
house in a given area sells for, as well as what the most desirable houses
in that area are like and what they cost.
Some experts suggest that buyers who take this route try to find a "cosmetic
fixer" that can be completely refurbished with paint, wallpaper,
new floor and window coverings, landscaping and new appliances. Buyers
should avoid run-down houses that need major structural repairs. A house
price that looks too good to be true probably is. A smart buyer will find
out why before buying it.
The basic strategy for a fixer is to find the least desirable house in
the most desirable neighborhood, and then decide if the expenses needed
to bring the value of that property up to its full potential market value
are within one's rehab budget.
Are there programs for fixer-uppers?
Homebuyers who want
the money to buy a "fixer-upper" along with a home improvement
loan can turn to HUD's Rehabilitation loan program, Section 203(K). The
program is designed to facilitate major structural rehabilitation of houses
with one to four units that are more than one year old. Condominiums are
not eligible.
A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper"
property "as is" and rehabilitate it, or to refinance a temporary
loan to buy the property and do the rehabilitation. It can also be done
as a rehabilitation-only loan.
Investors must put 15 percent down, while owner-occupants are required
to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000
be spent on improvements. Two appraisals are required. Plans and specifications
for the proposed work must be submitted for architectural review and cost
estimation. Mortgage proceeds are advanced periodically during the rehabilitation
period to finance the construction costs.
What kind of return is there on remodeling jobs?
According to Remodeling
Magazine’s annual "Cost vs. Value Report,'' remodeling a home
not only improves its livability but its curb appeal with potential buyers.
Among the hottest improvement projects in 1995 were updated kitchens and
baths, home-office additions and more amenities in older homes in order
to compete with new homes on the market.
The highest paybacks come from the latter projects, according to the magazine’s
1995-96 survey of more than 300 real estate professionals. "The resale
market is tough right now and you need to give your home every competitive
advantage you can," one agent said.
While home offices are a relatively new remodeling trend, adding one to
a house recoups 58 percent of the costs, according to the survey.
What are some resources for info on home improvements?
Ready, Set, Build: A Consumer's Guide to Home Improvement Planning Contracts lays out a road map for homeowners when they hire a contractor from selecting the right one, obtaining competitive bids up to what to include in a contract. There also is information on consumer rights, liens and financing.
Are there gov't programs for rehab?
HUD's Rehabilitation
Loan Program, Section 203(K) is designed to facilitate major structural
rehabilitation of houses with one to four units that are more than one
year old. Condominiums are not eligible.
The 203(K) loan is usually done as a combination loan to purchase a fixer-upper
property "as is" and rehabilitate it, or to refinance a temporary
loan to buy the property and do the rehabilitation. It can also be done
as a rehabilitation-only loan. Plans and specifications for the proposed
work must be submitted for architectural review and cost estimation. Mortgage
proceeds are advanced periodically during the rehabilitation period to
finance the construction costs. At this time, only select lenders are
participating. For a lender list, call HUD at (202) 708-2720.
Are fixers a good idea in bad areas?
Distressed properties or fixer-uppers are everywhere, even the wealthier neighborhoods. Such a property is poorly maintained and has a lower market value than other houses in the neighborhood. Many experts recommend that buyers find the least desirable house in the best neighborhood and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's budget. Most experts say buyers should avoid run-down houses that need major structural repairs.
Are there any special tax breaks for historic rehab?
A landmark property
could potentially be certified as a historic property and that would include
certain tax advantages.
According to John W. Reilly, author of "The Ultimate Language of
Real Estate," 4th Ed., Dearborn Financial Publishing, Chicago; 1993
a "historic structure" is "a property listed in the National
Register of Historic Places, located in a registered historic district
and certified by the Secretary of the Interior as being of historic significance
to the district, or located in a historic district designated under an
appropriate state or local government statute that has been certified
by the U.S. Department of the Interior.
"The Internal Revenue Code provides certain tax incentives and deterrents
to encourage the preservation of historic buildings and structures. There
is a 20 percent investment tax credit for qualified rehabilitation expenses
in qualified rehabilitated buildings and certified historic structures,"
he writes.
In addition, Reilly says the tax code penalizes an individual who demolishes
or substantially alters a historic structure. Demolition costs will not
be permitted as a deduction, and substantial alterations or completely
new improvements will not be eligible for any form of accelerated depreciation.
What are some guidelines to follow when trying to find a contractor?
Never hire a contractor without first taking the following steps, according to the League of Homeowners:
- If your state has a licensing board for contractors, call them. And ask the board if there are any outstanding complaints against that license holder.
- Contact your local Better Business Bureau to see if there are any complaints on file.
- When interviewing, ask prospects about their worker's compensation insurance.
- Get the policy number and phone number of the insurance carrier. Call to be sure the contractor is covered. If he or she is not, any work-related injury on your property could become a liability to you.
- Check to see that the contractor has an umbrella general liability policy.
- Always ask for references.
- Always take the time to call and verify them.
- Do not give in to pressure to make a decision. Believe it or not, there are more contractors than there is work to be done. If a contractor insists that you make a quick decision, move on to someone else.
- Never pay a deposit to a contractor. If you are asked to pay a deposit fee at the first meeting, simply end the meeting.
