By Mike Heayn Real Estate 101
NOW THAT THE QUICK HOUSE FLIP market is drying up due to lower appreciation, investors are getting back to basics when purchasing fixer-uppers.
The first thing to remember when purchasing a fixer-upper is your exit strategy. Before you even make an offer, figure out what the property will sell for in today’s real estate market. Be conservative, you do not want to place an unrealistic value on the property and have it sit on the market for several months. Remember, every month that goes by with no sale is another month you have to make the mortgage payment, which cuts into your profit. Make sure when running the numbers to include the correct costs of materials and labor. Also, figure out what profit you want to make. You are not buying a fixer-upper out of the kindness of your heart, but rather to turn a profit.
If the numbers make sense, investigate the area. The real estate mantra — location, location, location — is something you should keep in mind. No matter how beautiful you make a house, if it is next to a freeway and liquor store in a rough part of town you will find it more difficult to sell. Figure out who you are selling to — i.e. young professional, family or older individuals. A family is going to care about the schools in the surrounding area, while a young professional may care about the local entertainment. Make sure the location has what your potential buyer is looking for. Once again, you can change a house a million different ways, but you cannot change its location.
Curb appeal is important. Putting down sod, painting the exterior and giving a property curb appeal is the best way to attract potential buyers. It is almost pointless to invest large sums of money on the interior of a fixer-upper if you are not going to spend any money on the exterior.
Cosmetic improvements yield the best return. New interior paint and flooring/carpet will give you the best bang for your buck. Do not spend excessive amounts of money on projects that will yield little to no return. For example, fixing a cracked foundation, albeit very important, is not a profitable venture. Buyers expect a property to have a solid foundation. Other major projects that buyers expect to be taken care of are plumbing, electrical and roofing. Every property is different and some need certain repairs done, just remember not to get caught up in projects that cost a lot of time and money but yield little return.
When purchasing a fixer-upper, take the time to run the numbers, investigate the location, invest in curb appeal and make cosmetic improvements that will yield the highest returns. Remember when you are working on a fixer-upper, time is money and the faster you can sell a property, the more money you will make.
MIKE HEAYN is a Washington Mutual multi-family loan consultant. He 310-428-1342, or e-mailed at
Originally published in the Santa Monica Daily Press print edition on September 26, 2007. Read the original PDF.