What To Look For In A Fixer-Upper
Buying fixer-uppers has been a common investment technique for many years. These days, with millions of foreclosed homes available at bargain basement prices, fixer-uppers can be an excellent choice for buyers who are shopping for a home to live in, as well as for real estate investors.
Fixer-uppers are properties in need of repairs. They may be liveable in their present condition, or they may need quite a bit of work before they can be occupied, but in either case, there are some very important considerations when choosing the right property to help insure that you can achieve your personal objectives.
1. The Location
It used to be pretty rare to find a fixer-upper in a nice neighborhood, but the housing crisis has changed that. Today, fixer-upper properties are readily available in many of the nicer neighborhoods, especially in those states that have been hit hardest by high rates of foreclosure.
Don’t be impatient. Look around your chosen area carefully before making a final choice. It’s very important to be familiar with the local market. Choosing the right location will result in better property appreciation, and more demand when you are ready to sell, or better tenants and higher rental rates.
Avoid locations that have too many vacant properties, locations that have too many other investors in the area, or are places that you would not want to live yourself. Investor over-crowding tends to increase your competition and will therefore reduce your profits.
2. Know The True Market Value.
A property is not always a good deal just because it is a fixer-upper. Don’t let anyone sway your judgement about a property simply because it’s a fixer-upper. Just because a home has been foreclosed on does not automatically mean it is a good deal. Good deals are made through knowing what the true market value is, then negotiating a price that is as far below the true market value as possible.
3. Find A Fixer-Upper Project That You Can Handle.
Whether you are planning to live in the property, fix it up to sell or fix it up to use as a rental property, the most common mistake is that of taking on a project that is beyond your ability to handle.
I’ve done dozens of fixer-upper projects, including managing them for other investors. The biggest problem I’ve seen consistently is investors who take on projects that are bigger than they can handle. This leads to cost over-runs, projects that take too much time, and even running out of money and another foreclosure. I’ve seen numerous projects that were never finished after the buyer got over budget and ran out of money.
It’s easy to rationalize a project before you start, and inexperienced investors often believe that they can renovate an entire house in 4 weeks, working only on weekends in their spare time. That is a common mistake.
One biggie I suggest is to avoid any fixer-upper that needs walls moved in order to be functional. Moving walls and things like staircases can create unexpected problems unless you are planning to use a contractor who has adequate experience and a crew that can get the work done correctly. I’ve seen projects that began well and got totally out of hand and over budget after the investor decided to make extensive changes to the original floor plan.
If you choose a fixer-upper property in a desirable location, keep your rehab budget and necessary work within your ability to control, and you have a good renovation plan that you can stick with, you should find yourself owning a great property at a below market price. That means you’ll have some positive equity or a positive cash flow right from the start. And after all, that’s the main reason why you should consider buying a fixer-upper.
Common Methods to Deal With Wholesaling Real Estate
Wholesaling Real Estate is regarded as a no risk strategy that may get huge benefits for first-time investors and also old-timers who had long been in the field of property investing. It takes little or no financial risk and that’s the reason why it is popular with most investors. There are a few ways about how you can get started with wholesaling: look for handles lots of equity, locking up the deals and lastly finding the investors who’d be interested to buy the deal.
Here are a few of the common methods to deal with the challenges in finding deals with high equity.
Search for sellers in classified ads or Craigslist. If you’ve a tight budget and wants to try wholesaling real estate this is one of the best means for newbies investors. You can get leads there for free. There may not be a lot of good leads but you will soon discover some that are worthwhile like those who advertise that they’re in pre-foreclosure.
One other approach to market where you’ll not need to spend anything is to put a road sign like “We Buy Houses” and add your contact number in some high traffic intersections in your area. By doing this you will be able to target certain areas for some small investment. The only setback with wholesaling real estate method is that other municipalities restrict road signs so you need to ask around or do your research first before you place your road signs.
But here is one most targeted practice of marketing when flipping houses and that is through mail or flyer campaigns. Flyers are considered an ideal option since you can do these with a limited budget. Just print out some flyers announcing that you are a cash home buyer with your contact details. Then look for the prospective area that you’d like to distribute your flyers to.
But if you’ve enough budget, you may try mailings to targeted homes in area you wish to acquire. There are also companies out there that may help do this for you at an affordable price. At the same time assist you in finding motivated sellers like those in foreclosure.
After you have good leads coming into your wholesaling real estate pipeline, the next thing you need to do is get them under contract to buy. Try and see if you can get yourself a season investor or an attorney in your area to have a contract that would work well for you. It’s crucial that you ensure that you have the right to assign the contract before closing. In some other states, you’ll have the right unless the agreement states that you cannot assign the agreement and the term where buyer has the right to assign agreement can be added. So that you can then start marketing it to buyer’s list when you get the deal under contract.
Can People Avoid Foreclosure?
Many people emphasize on the fact that once you’re not able to afford your mortgage payments, your property will inevitably be foreclosed on. Because of the devastating penalties foreclosure can produce to an individual’s life, most people will do literally anything to avoid it. There are actually many reasons that make your lender issue a foreclosure notice for you, and most of them are a direct consequence to your uncalculated actions. However, in today’s conditions, the rules have changed a bit. With the economic instability we’re living by, it’s becoming harder than ever to have control over our financial lives. For people asking if it’s even possible to avoid foreclosure, I’ll reply that it definitely is, but only if you follow these tips:
1- Ignorance isn’t bliss:
I keep saying to people that ignorance is not the way to go when you’re facing financial issues. If you think that you’re going to outsmart your lender by ignoring them, then soon you’ll realize that you’re only hurting yourself. The number one reason people fall into trouble is because they ignore signs when they clearly see they’re coming. If you want to have all the options open to you, you need to act as soon as possible.
2- Don’t be afraid to ask:
Another key thing to avoiding foreclosure is to talk to your lender about possible alternatives. If you’ve acted as soon as you were not able to pay your mortgage, then there will definitely be many options left that you could choose from. Try to contact your lender and explain to them why exactly you are unable to afford any further payments. If they find out that you’re really honest and not just making things out, then they will be more than happy to offer you alternatives such as: forbearance, short sale, period extension, tax reduction…etc.
3- Solve what’s causing the problem:
If you are facing foreclosure, then there must be something wrong with your finances. While sometimes things could be way over your head (like job loss, death, loss of second income), most of the times it’s something that you have control over. You need to seek a debt relief expert who will make sure that you spend your money only on things that you and your family can’t survive without. If you learn how to spend rationally, then you’ll be able to avoid many financial problems and not just foreclosure.
I know that many people think that there will be no way for them to avoid foreclosure. However, with the right education and awareness, you will be able to avoid it and improve your financial as well as your overall life.
HUD Homes for Sale: What Are They?
HUD homes are properties where buyers obtained FHA financing which government is financing that offers a low down payment of 3.5% and this FHA loan is guaranteed by the government so that when the homeowner defaults Hud-FHA then pays that lender off so they do not lose any money. When these homes are foreclosed on and sold back to HUD at the foreclosure auction then they become HUD owned homes or government owned homes. After HUD receives title then HUD places the home on the market for sale with a Real Estate Broker. You cannot buy a HUD home directly from HUD. HUD properties are listed with Real Estate brokers and placed on the multiple listing services for sale. The best way to find out about HUD properties is to find a certified HUD broker who will submit a bid for you and give you advice.
Only licensed broker who are certified with HUD can sell HUD homes to the general public, however registered non-profit organizations and government entities may submit offers without the use of a broker. HUD gives priority to owner occupants however anybody can buy a HUD home. Owner occupant by HUD is some who has not purchased a HUD home in the last 24 months and someone that will occupy the property. Falsifying owner occupant status is considered a felony and subject to a $250,000 fine (18 U.S.C. 1010,3559;3571).
When HUD properties are listed for sale they go into one of the following categories:
IN (Insurable)-qualifies for FHA Financing.
IE (Insurable with escrow)-qualifies for FHA financing with repairs of $5,000 or less. These repairs will be responsibility of buyer but can be added to loan amount.
UI (Uninsurable)-these properties do not qualify for FHA financing. These properties typically have repairs exceeding $5,000.
UK (Uninsurable)-these properties do not qualify for FHA financing FHA 203b but will qualify for FHA 203K which is an FHA program that allows you to add repairs over $5,000 to the loan.
To submit a bid you must be pre-approved by a certified HUD lender and if you are paying cash you will need a bank statement proving you have funds in the bank to close. Bids are submitted through HUD’s website by a certified real estate broker. Bids must be submitted by 11:59 PM CST by the bid deadline date.
All uninsured (UI) and uninsured -203K eligible (UK) properties are assigned to a lottery program for 7 days. Also properties in designated Revitalization areas are also assigned to a lottery program. These properties are only available to good neighbor next door (GNND) participants and HUD approved nonprofit organizations and government entities. A government entity usually includes school teachers, and law enforcement. These properties are not listed in MLS and must be submitted through HUD website hudhomestore.com. These offers must be full price and HUD does not pay commission or closing costs of these properties.
The good neighbor next door (GNND) program offers properties in designated revitalization areas at a 50% discount to:
Officers
Teachers
Emergency Medical Techs
Firefighters
These buyers must meet some eligibility requirements but the main one is that they sign a silent note for the discounted mortgage amount that is removed after the buyer has lived in the property for 3 years. The main purpose here is to get get citizens to move into areas that need to be built up.
After the 7th day on the market HUD properties normally become available to owner occupants only and investors generally are not able to make offers until the listing status is changed by HUD to include investors. HUD will pay a certified broker up to 3% commission of the sale of the property. HUD will also pay 3% towards buyers closing costs but HUD accepts the offer that has the highest net to them. For example if the selling broker makes an offer on a property for $200,000 and takes a full 3% commission and the buyer asks HUD to pay 3% for closing costs than this total amount is deducted from the sales price and the net sales price that HUD looks at is $200,000 minus $$12,000 for commission and costs which leaves a net figure of $188,000. The $188,000 is the price HUD looks at.
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