Jan. 26, 2010

Top 5 Ways Portland Buyers Fumble with Fixers

[caption id="attachment_215" align="alignleft" width="300" caption=""Watch your step!""][/caption]

These days, it is all too easy for  inexperienced buyers to become obsessed with getting the "best deal".   I'm talking about  the "weekend warrior" buyer- the one who watches countless hours of HGTV shows that make it seem plausible that someone could seek out, purchase, remodel and flip a home for 25% profit in 30 minutes, or less. The "Hey, I bet I could do that, too!" type of buyer...

#1   You don't actually know how to fix stuff:

Do you know how to re-wire a circuit breaker? Have you actually done it, or just seen it on TV?  If water starts shooting across the floor after you smash the old toilet with a sledgehammer, do you know how to turn it off? Do you know how to pull up the carpet and lay down that fancy tile flooring your wife picked out at Home Depot last weekend? No? Then...

#2  You don't have the money to get things fixed:

You don't have to be a handy-man to buy a fixer. However, you definitely need deep pockets with plenty of cash in them. Fixing up a house can cost a lot of money. I mean a LOT of money. Do you know how much a toilet costs? How about a window...or a new heating system? Do you know how much it costs to pay the people who do know how to do that stuff? I've met electricians who charged by thesecond,  roofers that actually preferred to be paid in kidneys, and  plumbers whose invoices technically qualified as Crimes Against Humanity...

#3  You don't have the time to get things fixed:

So, let's say you have the knowledge, the money, or some combination thereof that you determine will make this a workable scenario. Do you have the time?  I was talking with a friend of mine recently about this. He's a professional home inspector, so he definitely has the knowledge and the money required. However, he was complaining about how he'd been working on a bathroom remodel for an entire year. A YEAR!  His intentions were pure and his plan was solid...but time just kept getting away from him.  Think about that for a minute.  A whole year of planning, anxiety, struggling to find the time...NOT being able to use the bathroom... Now think about trying to fix up a whole house.  Make no mistake, any rehab project is a serious time-suck, but a whole house is a full-time job, and then some!

#4  You can't get the bank to actually give you the loan:

These days, banks are getting increasingly antsy about loans, especially for fixers. Remember, the house has to appraise for the amount you're paying for it, or at  least the amount you're financing.  If the house is falling apart, the appraisal will reflect that. If the bank determines that the house is a potential liability, you'd better be prepared to provide solid answers to the above questions. If you can't, the bank is likely to reject your application on the grounds that you'll be too likely to get in there and find yourself over your head.  The last thing they want is to encourage somebody to default on a loan because they end up overwhelmed by the staggering realities of fixing up a crack-house.

#5  Your work  prices you above the market:

If you think you can manage the cost, effort, and time required for repairs, be careful not to price your new Valhalla out of the local market! Some clients of mine bought a house in Seattle back in early 2005. It was a nice, older home, in a pretty good area. They spent the next 6 months transforming it into a modern masterpiece, replete with stainless appliances, additional bedrooms and bathrooms, heated floors and dormer windows in the master bedroom.  They'd turned a $400k house into a $750k house. The problem was that the home was on a busy street, and the surrounding homes topped out in the mid-$600 range.  This home, in any number of other locations, could easily have sold for the $750 they wanted...but the present location brought the value down. They ended up selling it after several months for much less than their original asking price, simply because they had spent too much money in the first place. A couple of years later, I later sold a similar fixer just a few blocks up the same street. Having seen this movie before, I went out of my way to warn my client about the dangers of pricing herself out of the market by over-doing the remodel. However, she knew a lot more than I did about flipping houses in Seattle. She was from the East Coast, after all. Yada-yada-yada...same beer, different bar. She lost money...

Click here for more information on Portland real estate!

Rob LeRoy is a Seattle real estate agent and social media marketing coach with eXp Realty.

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