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1. Drive around the neighbor hood that you like and research what’s available by Owner
2. Ask family members and friends if they know of anyone who is making changes in their lifestyle (generally these homes aren’t on the market)
3. Local realtor who have listings of homes on the market
Points to remember prior to viewing a home:
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Take time touring homes
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Leave your emotions out of buying a home (new or fixer upper)
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Allow your self "time" to plan, complete your cost estimate for remodeling and projected time line schedule for all subcontractors work to be completed.
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Decide if you are going to complete some of the work yourself and when this would be done. Weekends only will add more time to your completion date.
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Have a contractor friend to see the home with you and give you some pointers as to the condition and time line for work to be completed.
What you are looking for is called a "cosmetic improvement’
property.
The first step is to determine precisely how much work needs to be done at what cost. Look for properties with broken sidewalks, deteriorated lawns, overgrown shrubbery, or peeling paint on the house or trim. Keep in mind any properties built before 1978 may contain a lead based paint hazard (order inspection prior to closing, it can be costly to correct and you would want seller to pay for this.)
The cosmetic type improvements (permit not usually required) are easily done by you and your family or hire a high school student to help.
For example, Lynn, a single "senior" person couldn’t qualify for a new home and found a fixer upper that was built in 1966. She paid $189,000 (July, 2004) for 1450 square foot home with 2 bedrooms, 2 baths, living room/dining room combination, den, kitchen, laundry room and a 2 car garage with work shop area. The home also had a 32 x 16 ft swimming pool.
Lynn’s family helped her paint interior, exterior, added retro fit windows, landscaping pruned and added new shrubs with irrigation system, changed electrical light switch covers, added ceiling fans to all rooms, changed kitchen sink fixtures and hood and replaced all carpeting. Her total cost was $10,000 (windows cost $5,000 and flooring $2,700) and her appraisal was $244,000 one year later. Her electric bill was reduced by 20% by having the retro fit windows. She also had cash refund from the utilities for energy saving improvements $500.00.
How did Lynn know what to do? She used the checklist below:
Exterior -
keep it neat and clean!
Landscaping: trim all shrubs, prune trees, plant new flowers, and add small shrubs and new mulch
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Suggest adding a fence to act as a screen and plant some type of flowering vine in front of screen
House exterior: paint the garage door and trim, install a new front door, new shutters, new exterior lights
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Suggest repairing and improving the driveway/sidewalks
Interior
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Wash all windows in and out
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Re-caulk windows
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Weather strip doors
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Clean all rooms: vacuuming and dusting
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Clean all appliances in/out and plumbing fixtures
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Paint all interior walls, ceilings and air conditioning vents
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Paint baseboards, doors and closets
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Paint kitchen cabinets (resurfacing- primer coat then paint)
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Add molding and new baseboards (current style)
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Wallpaper bathrooms and kitchen
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Update any tile in kitchen or bathrooms
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Install new bath tub/shower enclosures and fixtures
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Install new kitchen sink fixtures
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Install new interior door hardware
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Shampoo carpeting or replace areas that need changing
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Add ceiling fans to all rooms
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Update light fixtures and light switch covers
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Replace kitchen stove hood
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Replace refrigerator, dishwasher, with new (shop for sales) or repaint panels
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Remove any wood paneling (or paint)
A good thought to remember is that you can’t afford to overpay for the property!
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The actual costs of acquiring the property plus materials and services required to remodel the property are only a portion of the total costs.
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Cost should not exceed 80% of the property’s fair market value once the work is completed.
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Think of it this way, if you were to sell this property would you make a profit of at least $10,000 to $20,000? If not, don’t buy it!
How much should you spend for improvements? It’s easy to spend too much money fixing up a property.
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Average expense should be $2,000 or less for exterior and $3,000 or less for interior.
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Do you have the money available to fix up your property?
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If not could you borrow the money from a bank or use a credit card?
Suggestion: Lynn opened a Home Depot account that gave her 6 months to 1 year no interest, no payment if the amount is over $250.00 at any one time. This would be all items in your basket that totaled that amount, not one item. During the next 6 months or year after fixing her home she applied for a Home Equity Line of Credit with her bank. This loan was interest only. Her monthly payment was lower than Home Depot 19% at the end of the promotional program. .
Speaking of financing "how will you pay for your fixer-upper"?
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Money to buy fixer upper
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Additional dollars for repairs and improvements
You want one loan to provide both forms of financing so that you do not have to pay for a second closing. Some mortgages to consider include the
FHA 203(k)
program, Fannie Mae's
HomeStyle
loans, Freddie Mac's
HomeWorks
financing, and similar programs. If you now live in a home and need money for improvements, consider HUD's
Title 1
program for loans up to $25,000, for details, speak with brokers and lenders.
Do you have an experienced Realtor?
You need someone with a history of buying and selling properties and the experience to help you avoid pitfalls. They will have the earliest access to MLS listings and even find houses that never make it to the MLS list. Brokers also have instant access to information from the public records foreclosure database.
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Some agents run blind advertisements looking for these types of distressed sellers
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They have an inventory of homes or know about them as a matter of daily business
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Save you time by pre-screening properties to make sure they meet your investment criteria
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Agents will interview you to determine your short-term and long-term goals, and assess whether or not your goals meet with what they see in the market.
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They will also evaluate the amount of money you have to invest, your plans for making repairs to the property.
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Your realtor should locate 3-4 homes for you to view and make appointments.
Once appointments are made take along your contractor friend to help you check any structural items and advise you if this is a good cosmetic fixer upper. By your contractor advising you and your realtor it’s easy for your agent to include the repairs as contingencies.
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