Fixer Upper Houses You Don't Want
Fixer upper houses that you don't want? Here are some examples
of what to avoid.
Avoid Houses With Small Profits
It seems obvious, but then I am remembering that nice couple
in the Tucson newspaper that was proud of the $9,000 profit they
were going to make on a $200,000 house. That's ridiculous. There
has to be some reasonable minimum profit that you need to take
on a deal. Too little and you just have a job, not a good investment.
More importantly, fixer upper houses are inherently unpredictable.
If you ever watch those television shows on flipping homes, you
have probably seen the investor go way over budget a number of
times. It may be okay to go $18,000 over budget due to surprises,
if you projected a $35,000 profit. You'll still make $17,000
after all. But if you are trying for just $9,000, and this happens,
you just lost all the profit from this deal and the last. You
worked months for nothing.
How much profit you need as a minimum will vary according
to a lot of factors. How likely is it that this house has big
hidden problems? Very old homes are more likely to have surprises.
How much do you want to be paid to fix and flip a home? You want
an investment, not a job. What other options do you have? If
you keep looking, will you find better deals within a few weeks?
Pick your own number or numbers, but don't think too small.
Avoid Houses That You Can't Handle
If you know starter homes inside and out, why not invest where
your strengths are? It may be true that others are making $50,000
profits on upscale fixer uppers while you make $25,000 on basic
three bedroom houses. But are you flipping them faster than they
are? Maybe you can do two houses in the time they do one. Also,
do you know what upscale buyers want? Do you have the financial
resources to do the big homes without trying to cut corners in
ways that limit the increase in value?
Of course you can learn anything with time. For example, you
could become an expert on foundation problems and so make big
profits where others are scared off. But until you do know more
about foundations, you may be better off avoiding homes with
those kinds of problems.
Avoid Unique Fixer Uppers
When you are fixing and flipping a three bedroom, two bath
hose in the heart of a town that is growing, you know you will
find buyers. Buy an upscale fixer upper in a nice suburb and
you may have more work to sell it, but it will sell. But what
about that cute one-bedroom home in town, or that half-underground
house in the hills? You may want to avoid these, and any other
house that are TOO special.
I
know of a home that looks lie a spaceship. It is white, and shaped
like a flying saucer. Nice looking actually, but how do you put
a price on something like that? And if you can't put a price
on it, how do you know if you'll make money with it. To be honest,
such unique properties can be a real opportunity for the right
investor who is creative, a great marketer, and likes a lot of
risk. For most of us, though, this would be a house to avoid.
Unique fixer upper houses are difficult to price, which makes
them riskier. But they also take more time to sell. There are
only so many buyers out there for a spaceship house or a one-bedroom
cottage, after all, and it may be a year or more before the right
one comes along. An unpredictable holding time means unpredictable
expenses. Add unpredictable sales price to unpredictable expenses,
and you have a fixer upper that you might lose money on.
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