This article is going to discuss how to find the right property and fix the right items to achieve the highest increase in your property value. To accomplish this, you can use a FHA “Fixer-Upper” home loan called the FHA 203k and discussed in another article at www.socalfhahomeloans.com.
The #1 key is to first begin the search for a property in a good neighborhood that has the “right things” wrong with it. Many times other buyers will overlook and shun properties because they look terrible. They may have peeling paint, brown grass, old beat-up carpets, well-worn hardwood floors, and outdated kitchens and bath. But because 99.9% of the other buyers that are out there cannot see beyond these cosmetic flaws, you can oftentimes get a bargain purchasing this house with cosmetic flaws and then profitably fixing the cosmetic flaws. You can get the money to fix the property up with the special FHA 203k fixer-upper loan. So if you can see beyond the current appearance in a property, see the hidden value, you can many times gain equity in a property by turning it from an ugly duckling into a beautiful swan.
Look for Good “UN-changeables“
By “un-changeables“, I’m talking about attributes you cannot change about a property, or are difficult to change. Un-changeables are attributes such as:
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Quality of school district
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If the house is located next to a noisy street or freeway
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Crime in the area
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Floor plan of the house
So to buy a house to profitably fix up, you want it to have cosmetic things wrong with it that are reducing the price. You don’t want it to have things wrong with it that you cannot profitably fix such as the location, school district, general layout of the house, and crime in the area.
What To Fix
As mentioned above, you want to look for a house that has cosmetic things wrong with it that are reducing the price below market value. You want to be able to get a $2 increase in value for every $1 you spend on the fix up. Here are some examples of items where you get the most bang for the buck:
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Painting is #1. If you can find a bargain that just needs a good paint job, often you can raise the value substantially just by painting it.
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Flooring: replacing carpet and refinishing hardwood floors
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Lawns: taking brown lawns and making them green
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Updating kitchens and bathrooms
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Adding new light fixtures
These are some items that if done correctly, will raise the value of your property more than the cost to fix up these items.
What Not to Fix
There are items are much more costly to fix and do not add $2 to value for every $1 spent. Although this is not always true, if you can get the house enough below market value, sometimes these items mentioned below can be fixed profitably. But in general, you want to be careful with buying a house that requires fixes such as:
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Foundation repair
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Replacing electrical wiring
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Moving interior walls and adding rooms
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Replacing plumbing systems
So what you are looking for is that house in a good neighborhood that looks terrible and is a bargain just because it needs a good paint job or new carpeting. If you are going to use a FHA fixer-upper loan, it is best to have several contractors give you bids on the work that you would like to do before you make your purchase offer to the seller. And make sure the contractor breaks-out the cost of labor and materials.
If you would like to learn more about the FHA 203k fixer upper loan or any other type of home loan, please give me a call at 858-922-7899 or email me at rob@affinity-financial.com
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer and FHA specialist
858-922-7899 direct
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