A fixer upper home is a house that has the potential for a higher market value given the right improvements. That, then, becomes be a good investment if you do the right research.
Generally, there are two kinds of fixer uppers: - major and minor. Minor fixer uppers are properties that require only cosmetic repairs such as paint and floor resurfacing. This project costs less and therefore increases your profit margin. It is also the kind of project that you can probably do by yourself.
Major fixer uppers will need repairs for the house’s physical structure. This could mean anything from plumbing to wall replacement. More often that not, these kinds of repairs will require professional services, and perhaps some permits.
Now that you know what kind of fixer uppers there are, how do you go about investing in them? The first thing you should do is determine to what ends do you intend for your project. If you plan on selling the property after you’ve fixed it up, then you are considering flipping. The other option is to make the repairs with the intention of keeping the property to rent it out.
Flippers are bent on seeing an immediate return on their investment upon the closing of the sale. On the other hand, the return may not be as big as compared to what renting it may get over time.
Renters can afford to space out their profits over several years or so and because of that, they stand to profit more from their investment compared with flippers. Either option, though, will require you to consider three things when undertaking your fixer uppers investment:
- Property Market Value - know how much you can ask for the property after you’ve made all the improvements. This is basically assessing the potential selling price.
- Repair Costs –There are several financing options (credits cards, equity loans) depending on how much improvements and repair you intend to make. Consider whether you will do the repairs yourself or hire a contractor to do them for you.
- Ownership Price - In making your offer for the property, apply this formula: Take the potential selling price of the property after repairs and subtract repair costs and an additional 10% (as buffer for unforeseen costs). This will give you an idea of how much you should offer when buying the property.
These should get you started on your way to investing in fixer uppers. The trick is to make the right improvements to raise the property’s value to a price that can fetch you a profit. Good luck!
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