It depends. Distressed properties or fixer upper homes can be found anywhere, even in wealthier neighborhoods. Fixer upper properties are poorly maintained and have a lower market value than other houses in the neighborhood.
Many experts recommend that before you use fixer upper homes for Real Estate Investments, find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that Real Estate Investment property to its full potential market value is within your budget. If you are a novice buyer, it may be wiser to look for fixer upper homes for sale that only need cosmetic fixes rather than fixer upper homes that need major structural repairs.
Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent Real Estate investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.
The tax code does not allow deductions for the demolition or significant alteration of a historic structure.
The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan 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.
203(K) loans are usually done as a combination loan to purchase real estate investment fixer upper homes "as is" and rehabilitate them, or to refinance a temporary loan to buy the Real Estate Investment 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.
For a list of participating lenders, call HUD at (202) 708-2720.
If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a fixer upper home, or refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of Real Estate Investment loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility. (For VA Loan Assistance and COE help http://midwestvaloans.com/)
If you need a real estate investment home loan to buy a fixer upper home and remodel it, look at the U.S. Department of Housing and Urban Development's Section 203(K) loan program. The program is designed to facilitate major structural rehabilitation of fixer upper homes 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 real estate investment 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 on the fixer upper property. 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.
Building codes are essential to keep in mind when working on a fixer upper home. Building codes are established by local authorities to set minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.
All buildings must be issued a building permit and a Certificate of Occupancy before they can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.
Building codes also cover most remodeling projects. If you are buying a real estate investment property that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.
While hiring contractors recommended by friends is usually a safe route, never hire a construction professional for a fixer upper project without first checking him or her out. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file.
If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy.
If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want.
Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.
Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question about fixer upper homes. The most important point to remember is that remodeling a real estate investment property not only improves its livability for you but its "curb appeal" with a potential buyer down the road.
Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.
You can find distressed fixer upper homes for sale in most communities, even wealthier neighborhoods. A distressed fixer upper property is one that has been poorly maintained and has a lower market value than other houses in the immediate area.
Ascertaining whether the fixer upper home you're interested in is a wise investment takes some work. You need to 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 real estate investment 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. You should avoid run-down fixer uppper real estate investment properties that need major structural repairs. A fixer upper 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 fixer upper homes 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.
If you are ready to take on your next big project, partner with our real estate team to find your perfect fixer upper. There is something for every homeowner.
Call Ed Rippee of ReMax today at (816) 866-5043 to learn more about the fixer upper homes available to you in the Kansas City Area.